Indonesia's President Prabowo Subianto has an ambitious target to reach 8% annualised GDP growth by 2029. This would represent a sharp acceleration from an annual growth rate of ~5% for most of the past decade.

Chart 1: Indonesia's annualised GDP growth

Source: Trading Economics.

Unlike other economies, however, Indonesia is one of the least leveraged countries in the world. With government debt-to-GDP below 40%, there is ample room to spend to lift economic growth.

Chart 2: 2024 government debt-to-GDP for selected countries

Source: Trading Economics.

Typical of years following the election of new Indonesian presidents, government spending and economic activity has been weak in 2025. This presents the potential for a rebound in 2026 as newly installed government ministers and SOE leadership teams begin to execute on key programs and strategies.

To support this growth agenda, a new growth-focused Minister of Finance, Purbaya Yudi Sadewa, took office in September 2025. We are beginning to see the initial impacts of his changes to monetary and fiscal policy, with money supply growth jumping from mid-single digits in August to nearly 20% YoY in September. This will likely help to kick-start the economy into next year.

Chart 3: BI adjusted M0 growth versus M2 versus loans growth (% YoY)

Source: BofA Global Research.

In addition to low leverage, Indonesia is rich in natural resources, notably critical minerals such as nickel. In an inflationary world, these resources represent assets to the Indonesian economy which can continue to fetch ever-higher prices, supporting a stronger current account.

Chart 4: Indonesia plays a significant role in the global supply of some mineral and agricultural goods

Source: International Trade Center, Ministry of Energy and Mineral Resources, USGS, CEIC, Goldman Sachs Global Investment Research.

Indonesia's downstream verticalisation strategy to add value to its "rocks in the ground" has dramatically increased the export value of nickel-based products. As it moves up the value chain in different commodities, this can add material upside to the GDP growth outlook.

Chart 5: Nickel-related products export value increased ~8-fold since 2013 (left); Indonesia is a major producer of nickel, whose derivatives have high export value multiplier (right)

Source: International Trade Center, Haver Analytics, Goldman Sachs Global Investment Research (left); International Trade Center, Ministry of Energy and Mineral Resources, USGS, CEIC, Goldman Sachs Global Investment Research (right).

In light of temporary sluggishness in the domestic economy in 2025, we are finding highly attractive opportunities to own leading quality franchises in Indonesia. Some of these companies are generating dividend yields above 10% and delivering ROE approaching 20%, all while trading at discounted valuations.

Chart 6: Top yielding large cap APAC banks - FY25E yield (%)

Source: BofA Global Research.

Indonesia represents an exciting emerging economy, with a huge population of more than 285 million, rich in sought-after resources. This can support strong economic activity and business earnings into the future, particularly in an inflationary world. Trading at depressed levels of <12x forward P/E, nearly 2 standard deviations below the 15-year mean, and with strong dividend yields in leading larger corporates, now is the time for investors to reconsider Indonesia. These kinds of valuations do not come around often!

Chart 7: Indonesia MSCI Index forward P/E

Source: Citi Research, Bloomberg.

Global equity markets continued their strong run in October. US indices led the charge, buoyed by sustained strength in the 'Magnificent Seven', which saw the NASDAQ and S&P 500 rise +4.7% and 2.3%, respectively. This included Nvidia's market cap surpassing the US$5 trillion valuation. Interestingly, approximately 20% of the S&P 500's YTD increase has been attributable to Nvidia. Outside of the US, the FTSE and Euro Stoxx 50 followed suit, rising +3.9% and 2.4%, respectively.

Domestic markets were more muted than their international counterparts, with the ASX All Ordinaries Accumulation index rising +0.5%. During the month, inflation figures for the September 2025 quarter came in at 3.0% (YoY) vs 2.7% as at the end of the June 2025 quarter. These results were at the top-end of the RBA's target band (2-3%) and higher than expectations. As a result, financial markets have further tempered their rate cut expectations and are now factoring in less than 1 additional rate cut over the next 12 months.

In bond markets, the US 10-year bond yield declined -7 basis points (bp) to 4.08%, whilst its Australian counterpart was largely unchanged at 4.30%. The Australian dollar declined marginally, closing at US$0.655, implying a decrease of 0.7 cents.