Today the three combined have already reached half the size of the US economy, while positive demographic trends as well as financial and political stability allow them to continue the impressive growth trend and to lift living standard of 40% of the world population living there.
They complement each other nicely, with Indonesia supplying important raw materials to support the extraordinary growth of the other two. This positive backdrop translated into strong corporate profit which helped major stock indexes in Chindonesia achieve annualized returns of between 14% and 30% in US dollar terms in the past ten years.
Inflation increase
The global excess liquidity coupled with rising purchasing power has pushed up inflation in fast-growing countries such as China, India and Indonesia, something that could dampen corporate profit margin and consumer confidence. The positive sign is that all three countries are actively tackling inflation and we are seeing their efforts taking effect.
Although monetary tightening could slow down growth in the short-term (but still much faster growth than other regions), it will allow Chindonesia to reduce inflation pressure and continue to develop along a healthy long-term growth path.
Political stability has been a decisive advantage of Chindonesia and has allowed its economy to enjoy uninterrupted strong growth. India and Indonesia already have well-established democratic processes, while the Chinese government focuses on increasing people’s living standard and enjoys a high approval rate.
Domestic strength
All three are also tackling inflation, particularly food and energy, to minimize the erosion of lower-income people’s purchasing power. As long as they continue to improve domestic living standards, promote reforms and generate opportunities for its young and ambitious population, geopolitical risk should remain low in these three countries.
Local companies are in the best position to profit from this growth. In general, we found local companies better than global peers in tailoring to the unique local cultures or consumer tastes. Some local companies have built strong brands and operational networks to become the dominant players in the local markets.
They may also enjoy favorable treatment from the government. In addition, even for those successful global companies active in Chindonesia, they still have the majority of their revenues coming from mature markets, and therefore achieve much slower overall revenue growth than local companies.
