MENU

Indonesia Goes To the Voting Booth: How Might Singapore-listed Shares Be Affected?

voting election

It was Election Day in Indonesia yesterday. Citizens of Southeast Asia’s largest nation headed to the polls on Wednesday to choose the President of their country for the next five years. Current President, Susilo Bambang Yudhoyono, is set to finish his second term in office with Indonesian law prohibiting him from running for a third term.

In any case, the Presidential Election fight is between two heavyweights: Joko Widodo (Jokowi) and Prabowo Subianto. Although both candidates have announced their victories from readings of unofficial tallies of the votes, the official results will only be known on 20 July 2014.

Should investors in Singapore be concerned about who will win the election? What does each presidential hopeful mean for the future economy of Indonesia?

The differences

Both Mr. Widodo and General Subianto favour a nationalistic approach – in which companies with Indonesian owners might be better taken care of – to the future of Indonesia’s economy.

The key difference though, lies in Mr. Subianto’s push for a “People’s Economy” though his “Big Push Strategy”. He is prepared for his government to spend big in order to promote growth for Indonesia which he thinks will then bring about greater wealth to the people. Mr. Subianto has also talked about his preference for a more top-down approach whereby the State will have a bigger role to play in sectors such as automotive, aviation, banking, property, and other heavy industries.

Meanwhile  Mr. Widodo favours a more bottoms-up approach, although he does see the need to protect national interests in sectors such as banking. He’s of the opinion that creating more prospects for small and medium enterprises in the country would be the right path to prosperity. In other words, Mr. Widodo prefers to let the private sector take the lead in growing the economy of Indonesia.

What does that mean for Singaporean investors?

It seems that regardless of who will become the next president of Indonesia, the country might still be moving towards a more nationalistic approach to its economy.

If that comes to pass, investors might need to consider how the new administration might think of Singapore-listed Indonesia-based companies.

Both Wilmar International (SGX: F34) and Jardine Cycle & Carriage (SGX: C07), for instance, have large operations in Indonesia but are essentially foreign-owned.

Wilmar International is one of the largest oil palm plantation owners in Indonesia; its major owners are Hong Kong billionaire Robert Kuok’s group, and Archer Daniels Midland (NYSE: ADM), an American-based global agricultural commodities powerhouse.

Meanwhile, Jardine Cycle & Carriage derives a significant majority of its revenue and profit from its 50.1%-owned subsidiary Astra International, which is based and listed in Indonesia and is the country’s largest automotive group; Jardine Cycle & Carriage is linked to the Keswick family of Hong Kong.

Foolish Summary

Not every Singapore-listed share with Indonesian operations might be at risk though. For instance, Golden Agri-Resources (SGX: E5H) and Indofood Agri Resources (SGX: 5JS), both of which have large palm oil plantations in Indonesia, are owned mainly be Indonesian families.

Of course, all these might just turn out to be a false scare in the sense that Indonesian-based companies, regardless of who their owners are, might still be able to carry out business-as-usual. But, it’s still worth thinking about the potential implications for Indonesian companies in relation to both presidential candidates’ slant toward a nationalistic approach to Indonesia’s economy.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

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.