Why investors should not walk away from Indonesia now

Indonesia's strong fundamentals and infrastructure growth make it a mistake to abandon the Southeast Asian economic powerhouse, despite recent market troubles and environmental concerns. In October, MSCI reviewed Indonesia's market status and the Jakarta Composite Index dropped more than 11 percent in the following days. Kalimantan and Sumatra battled their worst wildfires in over a decade, burning nearly 2 million hectares and producing smoke that reached as far as Singapore, Kuala Lumpur, and Manila.

Investors might be misled by October's events, but Indonesia's long-term prospects remain robust. The country boasts the largest economy in Southeast Asia, with a $1.45 trillion GDP in 2025, according to BPS and IMF data. Indonesia's economy grew 5.29 percent in the second quarter of 2023, surpassing market expectations. As the region's largest digital economy, Indonesia generated about two-thirds of the world's mined nickel last year, as reported by S&P Global.

Foreign investment continues to flow into Indonesia, with $85 billion realized from January to September 2023, reaching three-quarters of the annual target. In the first quarter of 2023, foreign investors from Hong Kong, Singapore, China, Japan, and Malaysia accounted for around 80 percent of the total inflow. European companies are more cautious, questioning why their Asian competitors remain optimistic about Indonesia's potential.

The Indonesian government estimates $625 billion in infrastructure needs for 2025-2029, and public budgets can cover only about 40 percent of this investment. Transportation, power, water, and digital networks will require private capital. The PLN's electricity plan for 2025-2034 calls for 69.5 gigawatts of new capacity, around three-quarters of which will come from renewable sources, with demand expected to rise by 65 percent over the decade.

Indonesia's electricity demand alone is around 80 percent of what Spain consumes in a year. Investors should not abandon Indonesia now, as the country's strong fundamentals and massive infrastructure boom prove that betting against Southeast Asia's economic heavyweight is a mistake.