Will the Upcoming Indonesian Elections Affect Your Portfolio?


Well, what do you know – it is election fever again. Though this time, the action’s taking place in Indonesia. As Singapore’s southern neighbor, Indonesia is the largest economy in Southeast Asia and the fourth most populous country in the world.

In just a few short days on 9 April 2014, Indonesia would be heading for the polls. Given the volatile political history of the country, should we be worried about  any companies with exposure to the Indonesian economy?

Companies exposed to Indonesia’s economy

Singapore is home to many companies operating mainly in Indonesia. From the 30 companies within the Straits Times Index (SGX: ^STI), we already have Wilmar International (SGX: ), Golden Agri-Resources (SGX: E5H) and Jardine Cycle & Carriage (SGX: C07) as three examples of companies that have huge business interests in the country.

Both Wilmar International and Golden Agri-Resources are considered to be some of the largest oil palm plantation owners in Indonesia. Even when they sell their products all over the world, most of the materials are sourced in Indonesia.

Meanwhile, Jardine Cycle & Carriage earns most of its profit from its subsidiary listed in the Jakarta Stock Exchange, Astra International. Astra is not only a large conglomerate operating in Indonesia, it is also the largest automotive manufacturer and distributor in the country.

Who are the candidates?

‘Vibrant’ is a word that can be used to describe Indonesian politics. There are many political parties in Indonesia and power is never concentrated in just one political party.

Although the legislative election is taking place on 9 April 2014, many are already talking about the Presidential election which is slated to take place at the second half of the year. Currently, the front runners in the public polls for the Presidential election are Joko Widodo from the Indonesian Democratic Party of Struggle (PDIP), Aburizal Bakrie from Golkar party and Prabowo Subianto from the Great Indonesia Movement Party (Gerindra).

The issues at hand

Most of the political issues that are being discussed in Indonesia currently have a domestic focus. Indonesians are looking for a leader who is able to help them improve the situation on issues concerning inflation, infrastructure, flooding and local businesses.

It is worth noting that due to the more domestic focus for Indonesians’ political concerns, there is a risk that Indonesia might implement more protectionist policies which might affect businesses which are more international in nature.

There are signs that such policies are already being put in place in the mining industry where the government had imposed a controversial mineral ore export ban that requires companies to value-add and refine the mined-minerals in Indonesia before exporting them.

Foolish Summary

Given that Jardine Cycle & Carriage operates mainly in the domestic market, the risk of protectionist policies might be less of an issue for the company. Golden Agri and Wilmar, on the other hand, might cast more concerned glances on the upcoming elections: Both companies export large amounts of palm oil products out of Indonesia.

Being the largest economy in the Southeast Asia region, if Indonesia catches a cold, it’s likely that Singapore and the rest of the SEA region might get more than a sneeze.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Wilmar International.