Complete your registration today for a chance to win £50 John Lewis vouchers in our weekly draw Enter now
Baillie Gifford
Updated 23 Jun 2023
Save Article

Disclaimer

This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Please remember that the value of an investment can fall and you may not get back the amount invested.

In 1910, a Dutch colonial engineer discovered nickel deposits on the island of Celebes (now Sulawesi). The Imperial Japanese Army invaded in 1942, partly to lay hands on the metal to sustain its wartime industry. Now Indonesia mines more nickel than the next three biggest producing nations put together.

By country allocation, Indonesian companies were Pacific Horizon’s best performers in 2022. Our increasing conviction in them partly comes from how its government maximises the potential of its bountiful raw materials. These include commodities essential to the global transition to low-carbon technologies.

The world’s fourth most populous country is benefiting from a global boom in the resources it possesses in plenty. Beyond nickel, they include oil, copper, cobalt, bauxite, palm oil and rubber. The ‘green transition’ would be almost impossible without copper’s conductive properties, for example. Engineers use it to make solar, wind and hydro systems more efficient. They use cobalt to produce wind turbine magnets and to make biogas.

The abundance of cobalt and nickel makes Indonesia a key link in the electric vehicle (EV) battery supply chain. Its politicians have long cultivated good relations with the west and China, expanding the range of potential customers.

Indonesia’s president Joko Widodo, or Jokowi as he’s known, has also encouraged a shift up the value chain via an unorthodox method. Following his election in 2014, he banned some unrefined raw material exports, starting with nickel ore. This forced foreign companies to process the resources within local industrial parks so that Indonesia could accrue more value from its natural resources.

Companies in our portfolio, such as Merdeka Copper Gold, support this shift. Merdeka is developing a nickel project in southeast Sulawesi, involving a mine and two new nickel smelters, in partnership with a Hong Kong-based battery maker. The Indonesian miner’s management has a strong track record, and it’s backed by well-connected shareholders.

Merdeka and other holdings, including Nickel Mines and Vale Indonesia, showcase the country’s green commodities potential. Although Indonesia is a major greenhouse gas emitter because it burns domestic coal for energy, it is aggressively promoting its potential for investments in hydro, wind, solar and geothermal power and its commitment to net zero emissions by 2060.

So far, President Widodo’s commodities policy has attracted $25bn in overseas investment. China’s CATL and South Korea’s LG Energy are among companies building local processing plants. And the government is in negotiations with Tesla about building a car-making ‘gigafactory’, having already signed a $5bn deal to supply the electric vehicle maker with nickel products.

We see more foreign direct investment coming to places such as the industrial park at Tanah Kuning. Its construction in Borneo covers 30,000 hectares – the same area as the entire city of Edinburgh. It will be the world’s largest such site powered by renewables (hydroelectricity and solar power) and will specialise in battery production.

Indonesia’s impressive GDP growth rate is buoyed not just by the success of miners and mineral processors but by companies gaining from its strengthening domestic consumption. Its quarter-billion population is youthful, and the middle class is growing.

One beneficiary is PT Bank Rakyat Indonesia, which we consider the best microlending business of any emerging market. The lender’s branch network across the nation’s many islands is nearly impossible for rivals to replicate. Decades worth of customer data and local knowledge let it price loans effectively and profitably. We see it growing strongly for decades to come.

Astra International is also enjoying the rising tide of prosperity. The well-managed conglomerate distributes cars and trucks, sells financial services and leases heavy industrial equipment. It has a sizeable market share. And it counts Toyota, BMW and Honda among its partners.

Jokowi has successfully deregulated the economy and cleaned up state-owned enterprises. Meanwhile, the internet and smartphones have mitigated the disadvantages of a country spread over 17,500 often mountainous and jungle-covered islands. Indeed, Jakarta is now a leading regional incubator of tech businesses.

Since Jokowi’s election in 2014, he has overseen the completion of 2,000km of roads. That’s more than two-and-a-half times more than his predecessors managed in the three previous decades. In addition, there are new ports, airports and hydroelectric dams. Improved mass transport systems have eased Jakarta’s notorious traffic, and Java now has the country’s first high-speed rail link. After decades when its performance struggled to match both its scale and its natural resources, Indonesia is at last going places.

Roderick Snell
Manager, Pacific Horizon Investment Trust

Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.

This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

The Trust invests in emerging markets, where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA.

A Key Information Document is available by visiting bailliegifford.com

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.