I'm writing this from Jakarta, the beeping of hooters filling the air as scooters whir past the Hotel Indonesia roundabout outside my window. There's a 30-foot monument in the center of the traffic circle welcoming visitors to the Indonesian capital.
It's a typical Southeast Asian scene. Car traffic is at a standstill outside the Mandarin Oriental. The folks who arranged my room kindly selected a Hong Kong-based chain rather than an American one, no doubt with the 2009 bombings of the J.W. Marriott and Ritz-Carlton in mind.
How welcome foreign visitors really are in Indonesia is a good question. I got a feel for that at the conference I am attending, as one of the two lead authors of the Urban Land Institute's newly released Emerging Trends in Real Estate Asia Pacific 2019. You can find the report here.
It's the inaugural Indonesian event for the Washington-based ULI, which has big plans for expansion here and in Asia. The event and my research give me a great idea of where investors think markets are headed in Asia in the year ahead.
I interviewed around 15 major institutional investors and developers for the report, all Asia CEOs or chief investment officers or real estate investment heads for the region. Combined, my co-author, the ULI and PricewaterhouseCoopers interviewed 89 decision-makers and surveyed 373 to get their sentiment for the next 12 months.
We rank 22 cities by their prospects for investment and separately for development in 2019.
Jakarta, shockingly, topped the ranking in 2013 and sat at No. 2 as recently as 2015. But after that three-year run of heavy favoritism, it has sunk to 15 out of 22, low to middling at best.
Why? There is still immense interest in Indonesia as a market. Who would not want to penetrate the fourth-largest country in the world by population, the second-largest democracy behind India, a secular but majority Muslim nation with a fast-emerging middle class?
The statue in the massive traffic circle outside the Mandarin is the Selamat Datang Monument, with a man and a woman waving welcome to the Indonesian capital. The Hotel Indonesia roundabout is named for the first five-star hotel to open in Southeast Asia, back in 1962, now a Kempinski. It's still owned by the government, but European run.
Religious tensions have settled since the 2009 bombings, which followed even-deadlier blasts in Bali. Still, there was an Islamic extremist attack in 2016, with one bomb going off outside a Starbucks.
Proceed With Caution
On my arrival on Sunday, my driver from the airport and the hotel clerk as I checked in discouraged me from taking a tour of the center of the city. They told me in no uncertain terms not to head to the National Monument, as an Islamic "movement" thronged the area with thousands of people.
Definitely not a demonstration, everyone said! Nothing to see here... but don't go near. Every time you drive into an office or high-end hotel here, there's a battery of defense walls to drive around, as well as an armed inspection of the inside and underneath of the car.
I can see the Monumen Nasional from my hotel room. It's a white spire not unlike the Washington Monument, topped with a gold flame and designed to celebrate Indonesian independence from the Dutch. Near it rises the huge white dome of the Istiqlal Mosque, the "Independence Mosque," the largest in Southeast Asia. It looks like a capitol building, but serves a religious purpose instead.
Although Indonesia is secular, religious tensions and concerns remain high. Almost everyone in business circles plays them down, but they're there.
The event on Sunday celebrated the 2 million-person march two years ago, on Dec. 2, that brought the downfall of the then-Governor of Jakarta, "Ahok." That's the Hakka Chinese name used universally for Basuki Tjahaja Purnama.
Ahok is in jail now on what critics say are politically trumped-up charges. Ahok, a Christian of Chinese ancestry, was an unusual choice to head the Jakarta government, both a religious and ethnic minority. Ahok was hand-picked as a successor by Jokowi, who ran Jakarta before becoming Indonesia's president. But Ahok lost election to a second term after his opponent accused him of insulting the Qu'ran and Islam.
An edited YouTube clip showed him saying that he understood if people were "threatened and deceived" to vote against him by religious groups using a verse of the Islamic holy book that in part says. "O you who have believed, do not take the Jews and the Christians as allies."
The edited version went viral, and Ahok, after the 2 million-person march, ended up in jail. What he said amounted to, "I understand if my enemies use religion against me - don't be misled." And they used religion against him. My driver was glad he should soon be getting out.
Saudis Make the Scene
Links to hard-line states such as Saudi Arabia appear to be firming in Indonesia. My driver said he drives plenty of loaded Saudi investors around, including to the nightclubs at night. Yet the Saudi Arabian ambassador is now under pressure as I write, after he tweeted a comment about this Sunday's march, linking it to a recent flag-burning incident of an ensign carrying Islamic holy text.
The ambassador called the group that burned the flag "deviant." So the largest Muslim group in Indonesia is calling for the ambassador's recall to Riyadh, angry he has used the peaceful demonstration to bang a religious drum and interfere in local politics.
Confused? In a strange quirk, the Channel News Asia report on the Saudi Arabian ambassador is broadcasting from a building across the same roundabout at which I sit. Behind the reporter telling the story I can see my hotel room in the background, so I'm looking back at myself through the TV news as I write this column, a postmodern media moment indeed.
That Ahok got deposed is important because Jokowi, Indonesia's popular, secular president, is up for re-election in April. His pro-business agenda is under pressure from religious fundamentalists, so watch for what happens in April. His re-election would be very good news for Indonesian business and the country's economy. A loss would be a setback.
Two ETFs to Explore
There are two Indonesia-specific ETFs to play the market. They are similar but track different indexes, giving them noteworthy differences.
The iShares MSCI Indonesia ETF (EIDO) tracks the MSCI Indonesia Investable Market Index, which adjusts the investable Indonesia universe by the free float of shares. Both ETFs have a large component of financials and consumer companies despite Indonesia's reputation as a natural-resources economy.
The VanEck Vectors Indonesia Index ETF
Watch how they move heading toward April. The election will be a referendum on whether Indonesia wants to keep getting things done or regress into religious in-fighting. Under Jokowi's watch, Jakarta is due to soon open its ever-delayed MRT subway system. I sat on a panel on Tuesday with a vice mayor of the city who says it takes two-and-a-half hours for him to drive from his home to his office, a distance of 10 miles.
That's crazy. How can you govern the world's largest archipelago, 17,000 islands and counting, if you can't even get into the capital? Getting out is just as hard; you're advised to leave at least three hours before your flight in case of a traffic snarl.
Jokowi is getting the country moving. The Trans-Java Toll Road has linked Jakarta with the key port city of Surabaya, and roads spanning Sumatra and Sulawesi have also opened, with a trans-Papua road almost complete. This infrastructure across Indonesia's key islands is vital for the economic and social development, and the development of anywhere outside Jakarta.
Essentially, there are about 20 families who control everything in Jakarta, and indeed Indonesian industry. It's the same situation in Manila. I met a few of them at the Urban Land Institute event.
One of them gave me a ride back to the Mandarin after dinner. The short ride could take us any amount of time. "Welcome to my office," he told me, as the driver held open the door and I stepped into his SUV.