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Greater spending from the burgeoning emerging market middle class is one of those themes global and emerging market investors have clung to as developed market consumers and governments deleverage. But there’s a growing risk emerging market consumers could start pulling back as commodity prices fall and higher food prices lighten consumers’ wallets.
Indonesia has been a darling market for investing in this emerging market domestic demand story. Over the past three years, the MSCI Indonesia index gained 15 percent in U.S. dollar terms, making it one of the best emerging Asian markets behind Thailand and the Philippines. Indonesia has already lost some of its shine this year, with the market shedding 0.45 percent.
It may be time to reevaluate the staying power of Indonesia’s domestic consumption story now that commodity prices are easing as China sucks up fewer of Indonesia’s coal, palm oil and oil and gas resources, according to one economist.
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