India and Indonesia: assessing the impact of 2024 elections
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India and Indonesia: assessing the impact of 2024 elections

Key takeaways:

  • Over the last decade, leaders in Indonesia and India have capitalised on their popularity and successfully enacted reform policies that have boosted long-term investment and exports.
  • Market scrutiny will intensify into the elections for fear of policy reversal. Indonesia’s two term limit means a new incoming president and in India, 26 opposition parties have formed an alliance against Prime Minister Modi.
  • Despite uncertainty we expect the upcoming elections to preserve the economic policy status quo and reinforce both countries rise in global growth contribution and their role in geopolitics.

In Indonesia, the incumbent President Jokowi is ineligible for a 3rd term while the leading contender- Defence Minister Prabowo Subianto – remains accused of human rights abuses in the past. In India, Prime Minister Modi is popular but 26 opposition parties across states have formed an alliance to oust him from power. Competitive populism will likely be a theme into both elections.  Overall, however, it is likely that the uncertainty associated with the elections will be transitory.

Implementation of structural reform should continue regardless of the next leader’s popularity.

This is important as positive structural reforms over the last decade have seen both India and Indonesia’s contribution to global growth rise. Both countries have relatively young and large populations – a characteristic that’s set to grow in importance as China’s contribution to global growth wanes. Indeed, India overtook China to become the world’s most populous country in 2023. The International Monetary Fund (IMF) estimates that more than half of global growth will be concentrated in China, the US, India, and Indonesia over the next 5 years.  Within this, India and Indonesia will contribute 13% and 3.6% global gross domestic product (GDP) growth respectively. China’s contribution is estimated at 22.6%1.
Industrial policy reform by Indonesia’s Jokowi government means that the export of low value raw commodities such as oil, nickel and more recently copper has been banned since 2014.  This policy was designed to encourage exports of higher value-added finished products.  Accompanied by an expansion in infrastructure investment the initiative has increased foreign direct investment (FDI). As shown in the chart, annual inward FDI reached USD45bn in 2022, near double its level of 10 years earlier (USD25bn). More recently in 2020, it passed the Omnibus Law that reformed its bureaucracy, streamlined licensing, introduced a ‘positive investment list’ and eased labour laws in effort to make the country more competitive globally2.
India_Indonesia
Source: Bloomberg, Jan 2024

India’s Modi government introduced the Production Linked Incentive scheme to encourage strategic sector investment, digitalization of application and ownership databases under a single national window, alongside an increase in infrastructure investment.  The scheme allowed India to leverage on the evolving global supply chain. For example, Apple and its suppliers finally started manufacturing products in India during 2017 (Apple has been in China since the 1990s). Annual inward FDI peaked in FY22 at USD56bn, double that of USD27bn in FY13 pre-Modi’s government. Inward FDI has moderated to USD41bn in FY233.

As emerging market investors, we believe that upcoming elections won’t interfere the positive investment stories. Despite increased uncertainty and negative political headlines in the near term, policies are unlikely to diverge significantly enough to change the positive course both countries are on as they benefit from the positive reform enacted over the past decade.  

7 February 2024
Lin Jing Leong
Lin Jing Leong
Senior Sovereign Analyst, Emerging Market Asia
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India and Indonesia: assessing the impact of 2024 elections

1 Source: IMF, January 202
2 Source: Indonesia Investment Coordinating board, January 2024.

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In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

 

 

 

 

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Risk Disclaimer

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing communication. The mention of stocks is not a recommendation to deal.

 

This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

 

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

 

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

 

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

 

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

 

In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.

 

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

 


In Switzerland:
Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

 

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

 

 

 

 

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