Weathering Market Turbulence

Commodity Sector May See Indonesia Benefit From Trump's Policies: Aberdeen

By Dhania Putri Sarahtika
Tuesday, January 31, 2017

The local unit of Scotland-based fund manager Aberdeen Asset Management believes commodities will help Indonesia weather global market turbulence during Donald Trump's presidency.

Following his inauguration, Trump has given rise to concern over his policies as he followed up on his protectionist promises by withdrawing the United States from global and regional trade pacts. This has resulted in most countries, including Indonesia, expecting volatility in stock markets and global currencies, said Bharat Joshi, investment director at Aberdeen Asset Management.

On the other hand, Trump had announced plans to prioritize infrastructure spending, which would create new demand for coal and metals.

"We predicted that Trump would increase demand for commodities, such as coal and iron ore, because these are key materials in infrastructure development. This way, Indonesia can see higher commodity prices," Joshi said during a media discussion in Jakarta on Tuesday (24/01).

He added that higher commodity prices will boost the incomes and purchasing power of many Indonesians, particularly in commodity-producing regions such as Sumatra and Kalimantan.

Also, Indonesia's economic fundamentals remain solid with annual gross domestic product growth of around 6 percent projected for the next five years, low debt compared to GDP, and a narrowing current-account deficit.

That should help the country resist volatility amid an expected outflow of capital from emerging countries as the US Federal Reserve is likely to increase interest rates three times this year, Jhosi said.

Apart from commodities, Aberdeen predicts that the infrastructure, banking and property sectors will also perform well this year, with listed companies' earnings per share set to rise by between 13 percent and 15 percent on average.

Indonesian banks could expect higher earnings as the number of bad loans would likely drop, Joshi said.

This article first appeared on the jakarta Globe's website on January 25, 2017.

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