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Emerging Markets Haven't
Been this Inexpensive in Years -- And
Indonesia Offers a 9.2% Income Play
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Published:
November 24, 2008
The global stock market sell-off has hit emerging markets
especially hard, as investors move away from those areas they
consider the most risky. And while some emerging markets are
indeed more vulnerable to the credit crisis and global economic
downturn, others will still grow faster than developed economies
-- with little chance of a currency collapse, debt default or
other catastrophe that would severely wound corporate profits.
One country that could be among the leaders in the next bull
market is Indonesia. The world's fourth-most populous country
(behind the U.S.), Indonesia is the largest economy in Southeast
Asia. After years of high inflation, Indonesia's economy
stabilized in 2004 and has grown rapidly since then.
Much of this growth is thanks to valuable natural resources,
particularly oil, timber products, gold and other minerals, and
rubber. The country's productive agricultural sector generates
solid exports to the rest of Asia. And with a large, relatively
poor population, Indonesia has much room to grow as a consumer
society as its rising middle class increasingly demands more
food, better homes and furnishings, electronic appliances and
cars.
As government reforms begin to attract more foreign investment,
Indonesia has begun the process of building a larger middle
class -- the path to greater prosperity taken by South Korea,
Taiwan and mainland China.
Indonesia's economy grew +6.3% in 2007, and it kept up that pace
in the first half of this year. The global credit crunch,
however, has hit the country hard, and investors have fled. But
they're now returning for good reason: Even as the economy
slows, it's still expected to grow -- while the U.S. and Europe
contract, Indonesia's GDP is expected to rise +6.1% for all of
2008 and +3.7% for 2009. And despite this growth, Indonesia's
market trades at a rock-bottom P/E of only 6.7.
Long story short: The Indonesian economy is a good bet to remain
strong, which should help its markets rebound. That's a formula
for strong performance for Indonesian stocks in the year ahead.
We might not bet the farm on more speculative Indonesian
securities, however. Slowing economic growth in China and
Australia (two major trading partners) will hurt earnings of
some Indonesian companies, so the economy could slow more than
expected. For safety's sake, investors might want to consider
High-Yield International
editor Nick Lanyi's latest
recommendation. It's one of the
steadiest Indonesian income stocks around -- a telecom offering a yield of
9.2% -- and it trades on
the New York Stock Exchange, so it's a cinch for U.S. investors
to buy. If you'd like to learn the name of the stock and learn
more about the High-Yield
International newsletter,
please visit this link.
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