Indonesia wants to move its capital, wholesale, to a city on the island of Borneo. That was the surprise confirmation made by a senior Jakarta official during a panel session I attended this week.
Three propositions identifying three different cities as potential new capitals, all in the Indonesian state of Kalimantan, now sit on the president's desk.
The official, Oswar Mungkasa, is the deputy governor of the Jakarta Capital City Government who is responsible for spatial planning and the environment. So, as the person who plans the use of the physical space in the current capital, he should know.
What investors need to know is that Indonesian construction companies would stand to benefit massively from a raft of government contracts to build a capital city from scratch. There would also be extensive contracts granted to connect the capital with the rest of Indonesia's 17,000 islands.
That involves telecommunications infrastructure. Look to Telekomunikasi Indonesia (TLK) for that exposure, a stock that's easy for U.S. investors to access through its ADR. It's the third-biggest company in Indonesia, behind two banks that would not be clear gainers from the move.
Astra International, next in size nationally at No. 4 behind the telecom, would also benefit and has a pink-sheets ADR (PTAIY) , like most other major Indonesian businesses. The conglomerate offers several plans of attack in one. It owns the port in East Kalimantan, the island that's home to all three potential sites. Astra's seven business segments include other sectors that stand to gain such as toll roads, I/T, construction machinery, and real estate.
The purest plays on a new capital are Indonesia's huge cement companies, Indocement Tunggal Prakarsa (PITPY) and Semen Indonesia Persero (PSGTY) . Unlike other large Indonesian businesses, they have few tangential operations beyond cement-related quarrying.
All those stocks have market capitalizations of US$5 billion or beyond - big fish in Indonesian waters. The other major Indonesian companies are engaged in banking, consumer-goods manufacturing and distribution or agriculture. So none offer the same kind of direct exposure to any new capital city.
Indonesia's economy crossed the US$1 trillion threshold in 2016. The Indonesia Stock Exchange is a regional heavyweight, with a total market cap of US$450 billion. That's more than Mexico, and two-thirds the size of Southeast Asia's biggest market, Singapore.
Despite their size, though, emerging-market stocks are not for the faint-hearted. Even broad market exposure is a risk in a country with a flaky currency and a recent history of terrorist attacks and religious fighting.
I mentioned in Wednesday's story that there are two ETFs that offer broad exposure to the Indonesian market. They are the iShares MSCI Indonesia ETF (EIDO) and the VanEck Vectors Indonesia Index ETF
Currency risk has always been Indonesia's downfall. It's in the highest-risk category for volatility among emerging markets, alongside South Africa, Malaysia and Turkey, in the eyes of Société Générale. The Turkish lira has been this year's worst performer in the world, off 40%, with the South African rand in dubious second place and a 12% decline.
No wonder. Earlier this year, the Indonesian rupiah sank 14.5% to levels last seen during the Asian financial crisis 20 years ago. But what goes down must come up - it has pared those losses with a 4.5% gain since the start of November thanks to a more-settled look on trade.
Chief drivers downwards would be further increases in U.S. interest rates, which has been forcing Indonesia's central bank to raise rates in defense of the rupiah, or impaired emerging-market sentiment. To be honest, EMs all get painted with the same brush whenever there's a market downturn and investors look to shed risk.
The factors that would turn EM sentiment in Indonesia's favor would be a stimulus boost in China, continued easing of trade-war fears, and a slowdown or pause to Fed tightening - all of which are decidedly on the cards.
You can say Indonesia is a China-in-the-making. Per-capita income, pegged at US$4,500 for next year, puts Indonesia now on par with China as recently as 2010. Indonesia's economic growth looks strong, with the current rate of 5.1% forecast to continue through 2025 by Oxford Economics. But Indonesian inflation, at 4.2%, is also running high.
The decision on shifting the capital will have to wait. Indonesia's pro-business president, universally known as Jokowi, is up for re-election in April, and a second term is far from a sure thing. Whoever wins in April will make the ultimate call on which of the three Kalimantan cities looks most promising. Privately, executives say the government promises a lot, and inevitably fails to deliver.
Jokowi has delivered, with a heavy focus on infrastructure spending and improved tax collection to fund the construction. Those moves have been boosting Indonesia's prospects. That progress would be undermined should Jokowi lose.
Kalimantan makes sense as site for a new capital since Borneo is fairly central in the Indonesian archipelago. Another significant attraction is that it is not, unlike the rest of the country, on the "ring of fire," meaning it is not earthquake-prone or volcanic.
It would be a figurative seismic shift for the capital to move, and the business sector is mixed about the idea. But there's always the accusation that "Indonesia" essentially means "Jakarta" in both business and political terms.
Moving the national government would put Indonesia on par with the United States, Canada, Australia and Brazil in selecting a central city outside its major population centers to administer the country. It would also alleviate pressure on Jakarta and its 10 million population, where the traffic is impenetrable and reclaimed parts of the city are sinking into the swampland on which they are built.