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NEWS UPDATES Asean Affairs        10  June 2011

Nomura bullish on Indonesia

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Indonesia is building momentum and earning its place in the eyes of global investors, a local subsidiary of a Japan's largest brokerage firm said on Thursday.

Nomura Indonesia released its first research report on the country, covering the economy and politics while identifying opportunities for investment here. Nomura plans to establish a brokerage in Jakarta as it strengthens its roots in Asia.

"After more than a decade of reforms, the economy is now building momentum. The country boasts the world's fourth-largest population [which is also relatively young], an abundance of natural resources and finds itself in the tail winds of some of the world's most dynamics economies," said the foreword of the report, which was written by Rob Subbaraman and Simon Flint, co-heads of fixed income research for Asia excluding Japan, and Stewart Callaghan, head of equity research for the same region.

China and India are the Asian giants that will lead the world's growth, the report said, but "Indonesia cannot be ignored."

Nomura's report detailed the laundry list of economic factors in Indonesia's favor. It said the rupiah could strengthen to trade at 7,400 to the US dollar by the end of 2014, boosted by strong capital inflows, while senior economist for Southeast Asia Yougesh Khatri said Indonesia should reach an investment-grade sovereign debt rating by the end of this year.

The report identified natural resources as the main driving force behind the economy, helped by increasing global demand and Indonesia's plan to promote downstream manufacturing. It pointed to coal miners Tambang Bukit Asam, Adaro Energy and Bumi Resources and plantation firm London Sumatra Indonesia.

On infrastructure, Nomura said "the government's 2010-14 development plan that requires $220 billion in overall infrastructure development should benefit leaders in infrastructure such as Jasa Marga and the largest cement producer, Semen Gresik."

The firm said Indonesia could surpass 8 percent economic growth in 2015 if it met 10 development signals, including the government's commitment to pass a land acquisition reform bill this year.

Other signals included increasing funds allocated for infrastructure, opening the service sector to foreign players, sound financial sector development, strong political backing for the Corruption Eradication Commission (KPK) and a pro-reform coalition succeeding President Susilo Bambang Yudhoyno in 2014.

The risks the report laid out mainly came from domestic politics. It also pointed to potential problems with the global economic recovery, a spike in basic commodity prices, currency volatility, natural disasters and a failure in efforts for infrastructure development.

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