It appears that Indonesia is enjoying a record-breaking spree in consumer confidence. Capital is pouring into the country and a fledgling budget airline has placed a record order with Boeing for 230 planes. (Hope they find somewhere to park them.) People in bustling Bali seem to think everything is fine. Meanwhile global stock markets are tumbling as investors rush for the doors fearing Armageddon in face of the multiple financial and social problems confronting the western world.
WHY ARE GLOBAL STOCK MARKETS TUMBLING?
Basically there are three major factors spooking the markets:
1. The failure of both the US and European governments to come to grips with and find a lasting solution to their massive debt problems, problems which have been caused by years of irresponsible spending way beyond their means.
2. The frightening levels of unemployment in the US and Europe. A stubborn 9% in the US. A million young people unemployed in the UK and a staggering 20% of the population in Spain. Figures that threaten the fabric of society and social stability.
3. The slowdown in China which has been the power house in Asia in recent years and which helped Asia avoid the worst effects of the financial meltdown and credit crunch in 2008.
What is of particular concern is that these problems are not going to go away in a hurry. We could be facing years of low growth (which means higher unemployment because the job markets will not be able to absorb a growing population) and volatile financial markets.
SO WHY IS INDONESIA BOOMING?
There are many factors. There has been relative stability under SBY and while corruption is still rampant in certain sectors there has been a significant effort to weed out many of the culprits. The government and police have also done a sterling job in tracking down and prosecuting the terrorists who once threatened the stability of the country and discouraged investment and tourism. On the subject of tourism Bali has enjoyed an unprecedented boom to the point where its success is starting to have an impact on the very qualities that brought fame to the island. Much of Indonesia’s growth has been driven by domestic demand. The country barely noticed the impact of the financial meltdown in the west because it does not rely excessively on export markets.
WILL INDONESIA ESCAPE THE NEXT CRISIS?
Many believe that 2012 will see a global recession from which no country will escape. Time will tell whether Indonesia can maintain the present momentum of growth. Will tourists keep coming to Bali? There may be fewer from the US and Europe if people have to tighten their belts and are afraid of losing their jobs. Thomas Cook in London announced only days ago that its holiday business had fallen off dramatically and this led to a steep fall in the value of its shares. However, if cheap flights continue to be available the cost of travelling to Bali from Australia and Asian countries should still make the trip affordable especially when you compare the value for money you can get in Bali compared to Australia or even Singapore.
WHAT PERSONAL ACTION SHOULD WE BE TAKING?
If your livelihood depends on tourism it would be wise to keep one eye on what is happening across the world. Maybe now is not a good time to be investing heavily in expansion. People tend to do this when times are good. By the time a project is finished demand has weakened and there is a lot of spare capacity. We have seen this so many times in the case of office space for example in Jakarta. There is rarely a balance; it is usually boom or bust!
Where personal finance is concerned now is not the time to sit on your hands. When faced with adverse markets and uncertainties many people just freeze, hoping the bad things will go away and the good times will return. A guaranteed recipe for failure. Should you let all your money sit in the bank and wait for opportunities? In the best case scenario you are going to see the value of your money shrink as inflation reduces its value daily. In the worst case scenario we could see a major banking crisis and you could lose all your money. OK, governments back deposits with guarantees but you may have a long and uncertain wait. Even depositors in the safety of the Isle of Man had to struggle to get their deposits back when Icelandic banks collapsed.
So should you take all your money out of the bank and invest in stock markets or property? Those options could also prove disastrous if markets turned very sour.
SO WHAT IS THE ANSWER?
There is no single asset that can be guaranteed to see you through both good times or bad. Certainly every asset class has its day and if you choose the right asset at the right time you could strike it rich. But if you get it wrong you can lose everything. The only sensible strategy is to diversify. That means having a sensible spread of cash, currencies, stocks, bonds, commodities, property and alternative investments.
Yes, alternative investments since the very crisis that brought financial institutions to their knees has also provided shrewd and knowledgeable investors with opportunities to earn high returns if they have disposable cash that they can lock away for two or more years. Examples include funding for farmers, student accommodation funds, investing directly in trees, factoring (providing cash flow to businesses), funding real estate developments and litigation funding. Almost all of these investments will produce double digit returns with minimal or manageable risk. The only proviso is that your money has to remain invested for a certain time. If you are likely to need your money at short notice these are not the investments for you. That is what the banks are for.
It is possible that fears of recession are unfounded and we could see an unexpected and miraculous recovery next year. It has happened before. So we don’t want to be caught out by this scenario either. By holding a diverse portfolio you will be ready to cope with a variety of situations. But be prepared to adjust, adapt and innovate. Burying your head in the sand is not a viable option!
Colin Bloodworth has worked as a financial adviser in Indonesia since 1992 and is now Director of PPI Indonesia, based in Jakarta. He visits Bali regularly and can be contacted for advice at indonesia@ppi-advisory.com or colin.bloodworth@yahoo.co.uk or 021 3004 8024.
