Gear up for rate shift; Abundant potential in India and Indonesia

To expand investment options in Asia, India and Indonesia boast massive potential
India's demographic dividend bode well for consumption, services and financial industries, etc.
Indonesia's structural economic growth drives the development of materials and metals sectors as well as consumer and financial stocks sectors

The Federal Reserve's expected rate cut will likely exert downward pressure on the dollar, presenting opportunities to Asian stock markets. Beyond China, India is another populous nation. While the country presents ample growth potential, single-country investing comes with relatively higher risk and may not be for everyone. To broaden investment options in Asia, BEA Union Investment believes Indonesia is another promising market where favourable conditions converge. Both India and Indonesia are undergoing structural tailwinds with improving macroeconomic fundamentals. So, how will these transformations contribute to their economies, and which sectors are poised to thrive as a result?

India's demographic dividend highest in the world

India is witnessing a steady growth in its working and middle-class demographics, fuelling both personal and corporate investments. Coupled with the government's increased expenditure on infrastructure projects, these factors are contributing to robust economic and corporate performances. In the fiscal year 2022/23, India's GDP growth soared to 7.2%.

In 2022, the population aged below 14 accounted for 25% of the country's total population, surpassing China's 17%. Data showed India's working-age population, aged 15 to 64 years, is set to reach 1.1 billion by 2047. This burgeoning labour force will bolster demand across sectors, leading to an upsurge in demand for consumer goods and services. This, in turn, will benefit consumer stocks and service industries, such as food and beverages, automobiles, hotels, healthcare, and pharmaceuticals. The rising demand for cars, properties, education, infrastructures and manufacturing has propelled loan growth, providing a boost to the financial sector. Banks, personal finance, financial services and insurance stocks are poised to benefit.

India's prime minister Narendra Modi has been stepping up its reform efforts, such as lowering corporate taxes and increasing infrastructure spending in highways, renewable energy capacities and railways, among others. The government has recently indicated plans to invest US$134 billion in green infrastructure projects in the fiscal year of 2024/25. We believe Indian industrial and material stocks merit attention buoyed by these developments.

Indonesia enjoys persistent economic growth

Much like India, Indonesia, the world's fourth most populous nation, is also undergoing robust structural growth. Indonesia has the world's largest nickel reserve. To promote local production of electric vehicle (EV) batteries, Indonesia enacted a ban on nickel exports in 2019, prompting foreign firms to establish processing plants. This move resulted in a boom in the mining material and metals segments. Indonesia has also intensified its efforts to attract foreign investments, drawing interest from countries such as the Netherlands, the US and the Middle East, particularly in the infrastructure and metal material projects. Indonesia's trade surplus hit US$2 billion in January, marking the 45th consecutive month of surplus.

Under President Joko Widodo's leadership, Indonesia experienced a cumulative economic growth of 43%, with about 5-7% of the nation's GDP directed towards infrastructure projects. The country's economic success is reflected in the country's GDP per capita, which rose to about US$4,800 in 2022, approaching the pivotal threshold of US$5,000. Beyond this point, consumption is expected to see substantial growth, presenting a positive backdrop for consumer and bank stocks.

Continued growth momentum amid election year

Both countries are holding elections this year. In India, prime minister Modi's ruling party is in the lead, a development cheered by investors. Meanwhile, Indonesians have already cast their votes mid-February for their next president. While the final results are expected in approximately a month's time, preliminary polls suggest Prabowo Subianto, the current defense minister, will likely assume the presidency, while the eldest son of president Widodo poised to become the vice president. Market participants anticipate that Indonesia's incoming leaders will maintain continuity in economic policies with minimal changes, which bodes well for the country's future development. Positioned favourably for the benefits of structural transformations, both India and Indonesia are expected to offer ample investment opportunities in the coming years. Hence, BEA Union Investment holds a positive view in both stock markets.

In the face of the world's ever-changing economic landscape, no individual market or asset can constantly outshine the rest. Diversifying investments is the prudent approach. Single-country investment entails inherent risks. Embracing a diversified investment strategy allows for capitalising on opportunities across various markets while mitigating concentrated risks -- a win-win situation.