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The Best Way to Invest in the Muslim World

Written By Brian Hicks

Posted August 14, 2007

It’s an underdog in emerging Asia and in the Islamic world too. Indonesia has the world’s fourth-largest population, and is number one among predominantly Muslim states. Here’s why you can’t afford to keep your money out of this archipelago.


"Unity in Diversity" is the national motto of Indonesia, which gained its independence from the Netherlands following World War II. Pancasila, the five principles that provide the ideological code of the country, extol monotheism, just and civilized humanity, national unity, democracy, and social justice for citizens. Of the country’s 220+ million inhabitants, 88% are descendants of regional natives who converted to Islam beginning in the 13th century, when the religion spread across the Indian Ocean from its Arabian birthplace.

When Europeans set up trade outposts in the region during the Age of Exploration, they sought spices to replace the boring, bitter salt that flavored and preserved everything in their plague-ridden part of the world. Now, they seek energy, manufacturing facilities, and real-estate opportunities.

Again, foreign investors want spice from the 17,500 islands of Indonesia, but now they want to give some zip to their investment opportunities.

Indonesia’s GDP grew by over 6% in the second quarter of 2007. That’s less than China’s whopping 11% growth, but Indonesia’s growth may well be more sustainable.

As for their Muslim peers, the dynamos of the Muslim Middle East are of course the states of the Gulf Cooperation Council. Well endowed with hydrocarbons, these countries are now turning a corner.

In the oil-rich Persian Gulf, we see the United Arab Emirates extending their reach around the world and the availability of domestic opportunities to outside investors. But the game is still mainly limited to big-time funds and companies that are eager to take advantage of free trade zones being established there.

Remember Dubai Ports World? That company acquired a British-owned firm responsible for operations at several American seaports, and Washington politicians raised a fuss fueled half by trade protectionism and half by xenophobia masked as national security. Nevertheless, DP World, as it now calls itself to avoid overt reference to the Gulf, plans to double its port capacity by 2010.

DP World is snapping up and developing terminals throughout Asia, staking its claim on booming international sea freight costs and demand for everything from copper to cars in emerging markets across the continent. It’s easy to forget if you watch too much geography-blind news, but the Middle East is every bit as much a part of Asia as China is, and the torrential windfall that Gulf royals are enjoying in the twilight of the oil age is fueling investment adventures.

Dubai and Qatar are also in a stage of consolidation, ramping up stock market power that includes an offer to buy the Nordic exchange operator OMX out from under NASDAQ, and launching a joint futures market with NYMEX (the New York Mercantile Exchange) to track Arabian crude exports to Asia.

Though events in the Indonesian capital of Jakarta aren’t on the lips of as many newscasters as bombings in Baghdad or recalls in China, you shouldn’t discount the importance of Indonesia in the energy-intense emerging Asian scene.

You know that java is another name for coffee, but did you know that the Indonesian island of Java is packed with energy too? Deep underground, the islands of Indonesia and the waters around them harbor the world’s top geothermal resource.

Fully realized, the energy generated by steam heated within the earth could meet the needs of Indonesia’s entire population. Chevron (NYSE:CHV), the only foreign company operating geothermal plants in Indonesia, just announced that it would expand its production capacity there to power 700,000 more homes than its current total.


That will raise the tally to nearly four million homes powered by geothermal energy. That’s a hefty dent in a consumption intensity that rests entirely on fossil fuel in most countries, but it’s a meager amount considering Indonesia’s geothermal potential.

The U.S. Embassy in Indonesia estimates that the current 800 megawatts being generated in Indonesia amount to only 4% of the country’s total resource of 20,000 MW!

And in my opinion, geothermal isn’t the only investment opportunity waiting to be fully exploited in Indonesia. As the economy grows, its people are following in the footsteps of other developing countries, making their first purchases of things like mobile phones.

PT Telekomunikasi Indonesia (NYSE:TLK) is my top pick among the few Indonesian stocks that trade on Wall Street. This company has enjoyed share price growth of nearly 50% over the past year, before the recent market correction, and as the local economy continues to grow and modernize, I expect further subscriber additions to add to the company’s value and share price.

In fact, net profit for Q2 2007 jumped by 50%, beating market expectations on the back of strong results in its mobile phone unit.


Click the link below to sign up for Orbus Investor and learn why my strongest bets are on profitable mobile communications growth in emerging markets over the coming years.




Sam Hopkins