Indonesian stocks may be hazardous to your wealth

STOCKS in Jakarta appear enticing at first glance. They trade at just 15.8 times projected earnings, according to Bloomberg, well below their five-year average. On that score, Indonesian stocks haven't been so cheap in four years. Indonesia is one of Asia's few remaining young economies, with a working-age population not projected to peak for more than a decade. It's tempting, therefore, to seize the opportunity to snap up what looks like a bargain for Indonesian stocks.

Don't. Most global investors still remain wary of Indonesia's youthful charm. Indonesia has borne the brunt of selling by global investors across South-east Asia in the past month as markets brace for the US Federal Reserve to raise interest rates next month. While the market's certainty about a December hike has been easing in the past week, investors still put the odds of a liftoff in US rates at about 67 per cent.

That's bad news for economies such as Indonesia that rely on ample foreign flows of US dollars to buoy markets and keep borrowing costs low. Indonesia suffers like many emerging markets from the stigma of vulnerability. Apart from any fundamental weakness, that means outflows are likely to remain dramatic as global rates rise and with it uncertainty about emerging markets.