[embedded content]Jordan Roy-Byrne: Hello again everyone and welcome back to the Atlas Investor Podcast with Tiho Brkan. This is episode number 14. Well, it’s been a little while since we recorded our last podcast and the reason for that is we were going to record but then Tiho got a cold and was having trouble speaking. He had to rest his voice, then I got a cold immediately after that, and Tiho has been traveling like crazy in recent weeks, but we’re glad that we can finally make this happen and Tiho, so are you ready today? How are you doing? I know you’ve been traveling a lot, tell us what country we’re going to cover today, and where you are as we’re recording now.Tiho Brkan: Hello Jordan and hello everybody. Thank you for listening to the podcast. Yeah, I’m still nurturing a bit of
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Jordan Roy-Byrne: Hello again everyone and welcome back to the Atlas Investor Podcast with Tiho Brkan. This is episode number 14. Well, it’s been a little while since we recorded our last podcast and the reason for that is we were going to record but then Tiho got a cold and was having trouble speaking. He had to rest his voice, then I got a cold immediately after that, and Tiho has been traveling like crazy in recent weeks, but we’re glad that we can finally make this happen and Tiho, so are you ready today? How are you doing? I know you’ve been traveling a lot, tell us what country we’re going to cover today, and where you are as we’re recording now.
Tiho Brkan: Hello Jordan and hello everybody. Thank you for listening to the podcast. Yeah, I’m still nurturing a bit of the flu, but yeah, you made me sound like one of those singers that cancel a concert. And then all the fans get really angry at them. Yes, I had a bit of the flu and it was pretty annoying over the last week or week and a half as I’ve traveled extensively through Southeast Asia, and today we’re going to cover Bali. Just finished two weeks in Bali and it was a wonderful time, unfortunately, some of it with the flu at the end, but hey, what can you do? I’d still take Bali with the flu over no Bali.
Jordan Roy-Byrne: Tiho, as we get started with Bali, first I want to know, that picture that our YouTube followers and those following on theatlasinvestor.com can see, please let us know where that beautiful spot is.
Tiho Brkan: Okay, so we will discuss Bali in depth for those who don’t know it. This is Seminyak area, and this is called Potato Head Beach Club, and it has one of the most wonderful sunsets that you can ever see. So basically it’s a pool and in front of it is a beach. It has a wonderful couple of restaurants there and a great place to lounge.
I think both local, and in particular, western tourists, would line up in the morning around 9 o’ clock and they will try to get one of these beach beds so they can have it for the whole day because you can’t reserve it. It’s first come, first serve. It is definitely a very, very popular place. I really, really like it. I’ve been there many, many times.
Jordan Roy-Byrne: Okay Tiho, so let’s move on from that. We’ll get to some of the sites and more later but let’s just start off with some basic and general information about Bali.
Tiho Brkan: Okay, well we’ll discuss Bali and Indonesia together.
Bali is just one of the little islands in the southern part of Indonesia. Indonesia is a huge country comprised of many, many islands and we have over 260 million people living here. And it’s a US$1.1 trillion economy, but the living standards and GDP per capita is quite low at US$4,100. So quite low per person. The local currency is the Indonesian Rupiah, and we’ll discuss it more in depth later in the podcast, and how it has performed over the last two decades as well as the last few years.
For those living in more developed countries, and that regularly listen to us, like Europe, and the United States, and Canada, and Australia, Indonesia does have a stock market ETF. It actually has 2, so it’s quite easy to invest in Indonesian corporations and Indonesia itself.
When it comes to property, it’s pretty difficult for various reasons, which we will learn here shortly. In Bali, in particular, there are two ways to purchase property, either freehold, which is what most of us foreigners or westerners normally use to, where you are, for example, an Australian citizen and you buy a property in your name and you keep it and you give it to your family later on, and it’s basically yours forever. And then there is leasehold where you lease the land, or the actual land and the property from the actual owner, for a certain amount of years and we’ll discuss that later. And so the prices vary because of that.
It’s basically either buying the property or property and the structure, or you are renting it over the long, long-term, let’s say 20 or 30 years from the local owner. That is because it’s very difficult for foreigners to purchase real estate in Indonesia under their laws.
Moving along, Bali, in particular, is a very interesting spot due to tourism. It’s a tourism mecca. And it continues to grow and according to some statistics, by the Euro Monitor and the World Bank. When we look at international arrivals, which basically means people with international passports other than Indonesian passports, who stay more than 24 hours, so overnight stay, the growth in Bali and Denpasar, which is the capital of Bali, is extraordinary to the point that it’s the fastest growing in the world.
The growth rates for tourism are extraordinary. And for anyone that’s visited Bali, and understands the variety of things that Bali offers, it’s quite understandable. It’s such a beautiful place. Also, it’s quite an interesting place from a tourism perspective, and retirement perspective, and for holidays, weddings, enjoyment, all that kind of stuff.
However, when it comes to business, Indonesia is not the easiest place to do business. The laws and the corruption get in your way as well and when it comes to tax rates, Indonesia is kind of in the middle of the pack when it comes to the whole world. On one hand, the corporate taxation isn’t too bad. It’s at 25%, but when we look at the recent newest reforms, even the United States is now more attractive. Nearby Singapore is at 16.5%, and nearby Hong Kong is at 16.5% too. So from that aspect, Indonesia is a little bit high for the region. Individual tax rates are also somewhat high and they do have a value-added sales tax or a value-added tax or GST as we call in Australia, so that’s 10%.
Generally speaking, Indonesia is not the easiest place to do business, but a huge amount of opportunity exists and at the same time as well, demographics are pretty good. I think the country with such a high population and such high growth rates, can continue to do very well and especially for those who have local partners and local connections to start a business or continue to expand their businesses from elsewhere.
Jordan Roy-Byrne: Now, Tiho how is the overall standard of living in Bali? And I want to know how that compares to the rest of Indonesia.
Tiho Brkan: Sure, well because Indonesia has so many islands, the standard of living varies everywhere. The majority of the country is quite poor, but there are certain parts which are more populated and dense, that have a decent standard of living. Now, the standard of living is different for locals and expats. For example, when looking at Bali, the cost of living is quite low. And if you live like a local, you can get by with a minimum amount of money, like a backpacker for example. That’s very possible.
At the same time, for those that enjoy the luxurious lifestyle or what they’re used to in the west, or they have a maid at home, all of these things can be afforded in Bali because the labor costs are cheap. So generally speaking, the living standards in my opinion, (if you’re earning western kind of salaries, but living in Bali), is pretty good because you get, as we would say, a good bang for your buck. So the value is pretty good Jordan.
Jordan Roy-Byrne: Okay, and how about the overall Indonesian economy? How has it been performing in recent years?
Tiho Brkan: Well, it’s been growing at a pretty good pace. GDP growth rarely falls below 5%, except during the 2008 global financial crisis, or the slowdown recently in 2015 for the emerging markets. Then, China and Asia and the whole Asian export machine kind of slowed down. And that is because of the US dollar, which was rising at the time. So Indonesian growth has really come off since 2011 when the US dollar bottomed and started a bull market, but growth has still been decent, despite the fact the country is not growing as close to 7% as it was before.
Exports are one of the best measurements of actual growth, and one in particular that I like to use a lot. As the US dollar bottomed, Indonesian exports, naturally, and obviously, have suffered and we’ve only seen a little bit of recovery over the last 12 to 18 months. But that peak back in 2011 has still not been exceeded when we measure in US dollars. So some stagnation at the moment, but still decent growth.
Jordan Roy-Byrne: Okay, we touched a little bit on the cost of living, but could you compare that to the other countries that you’ve visited and the other countries that we’ve covered in our past podcasts?
Tiho Brkan: Sure, well as regular listeners know, I have visited most of Europe including Prague, Budapest, Zagreb, Belgrade, Montenegro, which is some parts of southern Europe. Also, Berlin. And then recently I was in Singapore, which is quite close and a neighbor of Indonesia. And Singapore is a lot more expensive than Bali, and Bali as a whole is a large island.
So depending on where you live, the cost of living will be different and it depends, as I was saying before, on the way that you live, if you come to Bali expecting all the things that you’re used to living in New York or London, (for example going to a high-end restaurant and staying at high-end resorts or serviced apartments), it will be decently expensive, relative to the way the locals live.
Some of the locals live on such a small amount of money that you’d be shocked. You’d probably fall off your chair, Jordan. So Bali, generally speaking, is similar to Belgrade or Montenegro, and so forth, but knowing what I know about the tourism and going to the nice places and restaurants and hanging out with your friends, and staying at a nice hotel, you would probably be scratching your head and saying, well, wait a minute, Bali is not as cheap as I thought it was. And that’s probably because you’re going to the places that are in demand, and they carry a higher price tag.
Jordan Roy-Byrne: Okay, now, before we get into the next segment and talk about investing in Bali, Indonesia, I guess my last question here would be this. I think Bali is very well known. I think even to people who don’t travel that much, internationally. How does it stand out from other well known international travel destinations? What makes it unique in your opinion as someone who has traveled to so many of these places?
Tiho Brkan: Sure, well Bali is one of my favorite places to visit for a holiday or to relax. In particular, Bali has, what I would call, a Bali vibe. If you’re a surfer or on a budget, you’d love Bali. If you’re getting married, and you have a very high budget and you want a luxury wedding, (and I’ve attended one for my best friend and a client, several years ago), you will have a blast in Bali. If you are just coming for retirement and you’re older than 55, 60, you can live an amazing lifestyle in Bali. The temperatures year-round are wonderful. And tourism is quite developed.
I think Bali is one of the only places in the world, if not the only place, where Four Seasons has two hotels. One in Ubud, which is kind of like the rainforest, rice fields area of Bali, which is central, without the beach, right inland. And that’s where the Obama’s recently stayed, in one of the most beautiful resorts in the world. And the other Four Seasons is right near the airport and near Kuta. So that tells you quite a lot about the tourism as well, and it’s one of the fastest growing tourists places in the world.
So basically, the Bali vibe is very interesting from many perspectives. The people are incredibly friendly. While the majority of Indonesia is Islamic, Bali is 90% Hindu, so they’re very spiritual people and very positive people. And they believe in karma quite a lot. You can feel that on the island once you land. So many people go out of their way to be polite and to help you. It’s incredible. I understand why the tourism aspect is going really, really well there. Balinese people are very, very polite, very happy, very positive. Always smiling. And yes, I love it. Plus, I like the big waves, so what’s there not to like about Bali?
Jordan Roy-Byrne: Okay Tiho, as we start, please discuss the asset classes that investors can use to invest in Indonesia and Bali.
Tiho Brkan: Okay, when it comes to Indonesia, I guess we will cover the stock market, the bond market, and the currency market. And with real estate, we will focus on Bali in particular. And for popular areas, that a lot of the foreigners invest in, and that is, I guess, attractive, from many different aspects. So let’s start with real estate first.
Jordan Roy-Byrne: Okay, and as we start with that Tiho, can you discuss the basic fundamentals of investing in Bali? And also the laws that we should know.
Tiho Brkan: Okay, so basically when it comes to laws, it’s not very easy to just come into the country the way one can come to certain European countries or Northern America, or Australia, and then purchase real estate. Unless you’re Indonesian or hold Indonesian citizenship, you cannot own real estate freehold, (or outright, indefinitely).
However, there are certain, I guess, ways to do it, using companies and so forth, which I’m not going to get into right now. But keep in mind, that generally speaking, when you’re buying it personally, as an individual, you cannot do it, but if you were to marry an Indonesian, and have a wife or a husband, that has citizenship from Indonesia, they could do it on your behalf. So that’s I guess one way of doing it for foreigners.
There are other ways of investing in real estate too but with questionable legality. As you know, countries like this, they do have a higher corruption index than others, so corruption is widespread. And certain people will do certain things for you if you bribe them or give them money under the table. And by no means do we at The Atlas Investor recommend doing that, because when you’re putting a large amount of money into an investment, you want to make sure you’re going to get the return of your capital, not just the return on your capital.
So laws are something that one needs to look into. And it’s not easy to invest in Indonesia, but generally speaking, if you do have a good lawyer, and if you do have a good plan or something that you might have questions about, please contact me at theatlasinvestor.com, because I’ve been looking at Bali quite in depth. If you do create a solid plan on how to proceed, then, generally speaking, you might want to learn about Bali real estate, and the key segments or areas of the island.
In particular, I’m going to talk about the four major ones, which are Seminyak, Canggu, Ubud, and Uluwatu.
So basically, Seminyak is your commercial area, it’s a place where there are things like the Potato Head Beach Club and it’s full of restaurants and shops and amazing villas, hotels, resorts. It’s a little bit north of Kuta and the airport. And it’s right on the western part from Denpasar. And the beaches there are decent, and it’s very vibrant. It’s full of cafes, as I said, and very, very high end, when it comes to Bali. Seminyak is already quite developed, and therefore expensive, but it’s the most popular place to stay for people who are visiting. And I really like it.
Then you have Ubud. Ubud is what we were talking about, where the Obama’s recently stayed at the Four Seasons. This is your rainforest, your tropical rainforest and rice field areas, if the people at home never been or don’t know about it, you should Google it and have a look. It’s full of temples and waterfalls and monkey forests. It’s stunning. It’s wonderful. It’s somewhere you would also go to do a yoga retreat or cleanse your soul and your spirit for a few days, disconnect from society. So from that aspect, Ubud is very interesting.
And then you got Canggu. Canggu is the mix of Seminyak and Ubud, so a few rice fields, and also a little bit cool villas, and nice cafes. And a lot of hipsters live in Canggu and a lot of surfers. It’s a very famous spot for surfing.
And then finally there is Uluwatu. It’s not very developed, from the majority of the southern island, but then right on the cliffs and the waterfront, you have some of the most beautiful and most expensive resorts and hotels in the world, including the Bulgari Hotel and the Alila Villa and many others. And Omnia is the new beachfront cliff side bar that recently opened I think a month ago and is absolutely stunning. I think they have one also in Las Vegas and one elsewhere in Europe, like in Monte Carlo or something. So this tells you how well developed some of these places are. And what kind of caliber of clients they attract.
Uluwatu is also famous for beautiful sunsets and surfers because even though you have these high-end resorts just around the corner, a kilometer or two down, you will have surfing villages, where you can get a 50-cent beer and catch waves all day. It’s a really chilled vibe.
So generally speaking, Seminyak is quite expensive. If you’re buying something in Uluwatu, it’s quite expensive on the beachfront too. Canggu is cheaper than Seminyak while Ubud is the cheapest.
So what does all this mean? Well, it’s very difficult to discuss Bali property because we have leasehold and freehold. If you’re buying something freehold indefinitely, and you have the right structure to do so, you’re going to be paying the actual real price of the property. Now, if you’re getting something leasehold, (most leaseholds are 20 years or higher, and up to 25 years, usually, when you’re doing a leasehold on a property that’s 25 years), it’s going to be a lot cheaper than buying it outright for the freehold. So prices vary quite a lot.
Generally speaking, in Canggu, you can buy 1000 square meter block of land for about US$350 per square meter, and it could be something like 100 meters from the beach. There, you can build a villa, and the majority of why Bali is such an interesting property investment, is because of the very high rental yields, due to tourism. So that’s one thing you can do.
Another thing you can do is you can look at a small, little villa with a private pool in a place like Ubud, like a two bedroom, two bathroom, and that can set you back US$100,000. And that can be a leasehold investment for something like 19 to 22 years.
You can also look at Uluwatu properties such as private villas on the cliff with a waterfront ocean. You’re looking at the waves and basically in front of you is just waves, the ocean, and Australia. Something like that can set you back US$3 to $5 Million.
There’s something for everybody, but one thing that a listener should take away is that the Bali real estate is very interesting for those that are looking for high yield. I’ve seen cases where people own villas and they purchased them as foreigners on leasehold for about 20 to 25 years, and they would make their money back in the first 7 to 10 years of this leasehold.
And I guess as the time runs out, the cost of what you can sell your villa for is reduced dramatically. It’s like an option, basically, to own a house, but once you make your money back within the first 7 to 10 years, excuse my French, but you rent the living shit out of it, and for the rest of the time, you have quite large profits, and you make profits back through running the villa.
A lot of this is done passively, because the cost of maintenance, the cost of staff, even having a chef at your villa, maids who clean the villas, are all very, very cheap. And when it comes to taxation, I’ve talked about the taxes earlier in the podcast, but let’s be quite frank, this is Indonesia and from what I see, a lot of the things are never reported. And if the tax officer comes knocking on your door, usually a few thousand dollars or even less under the table is paid and nobody saw anything. I’m not saying this is the smart way to do stuff, but this is the Indonesian way to do stuff.
Jordan Roy-Byrne: Right, you’re just providing the information. And that was some great information on all those places, Tiho, but I actually just have one simple question for you. The value of real estate and all these areas or just combined, how has it performed in recent years?
Tiho Brkan: So Bali real estate has performed very well over the last several years, (let’s say five to seven years), it’s gone up quite a lot. So that’s good news for those who purchased real estate five to seven years ago, and not so good news if you’re looking at buying right now. This is naturally what happened in Seminyak. Prices went up very high and then the villas are kind of spilling over and were moving up towards northwest side into Canggu while remaining close to Seminyak. But now it’s much cheaper to do something in Canggu. And likewise, as Canggu develops, maybe we will go and expand more and more. Tourism continues to grow at exceptional rates, and that’s something that I would like to discuss next, Jordan.
Jordan Roy-Byrne: Tiho, one question I have for you is, the popularity of Bali, has that lead to any downsides in terms of oversaturation, as far as population and tourism there?
Tiho Brkan: Yes, of course. When you have so many people coming to such a small island without too much infrastructure, of course, there’s going to be a lot of negatives. First and foremost, the internet in Bali is not very fast, so for those who run their businesses over the internet, don’t come to Bali for three months thinking you’re going to be able to work like normal. You might have some difficulties there.
Secondly, it’s a small island, with a small population before all the expats and all the tourists started to overwhelm it. Naturally, you can imagine that the infrastructure, the roads, the bridges, were never built for this kind of population increase, despite the fact that it’s a temporary increase. People come and go constantly.
Nevertheless, Bali is suffering from major traffic problems, and one of the friends that was there with me, with his girlfriend, oh my God, they were constantly complaining about traffic. They really let me know. I mean, it doesn’t affect me as much, because wherever I go, I take whatever I have in front of me. And yes, I know traffic is going to be much better when you’re driving on the German Autobahn, where I was in October and November.
There are some positives in Bali and there are some negatives in Bali. It comes with the territory. And finally, of course, with an increase in expats coming, an investment coming, there’s a lot more reports of people engaging in criminal activity and being a bit dodgier.
In particular, when it comes to investments I guess the local people are getting a bit smarter and they’re getting a bit better at negotiation. They can sense that the foreigners are coming in with large amounts of money, and when they see you, they just see dollar signs all over you.
And some of the people that come here and think that this is New York or Los Angeles and that if you buy something, and sign your name on a piece of paper, that it’s all fine and legal, it doesn’t really work like that. I’ve heard some reports of people buying villas and using locals to buy it on behalf of them, as nominees, and then creating some kind of contract that the local person will hold the property in their name on behalf of the actual investor.
And next thing you know, the person who’s got USD $300,000 has vanished, is probably on another island in Indonesia on his yacht, celebrating, and he can’t be reached over email or telephone or anything like that. When you tell the local authorities, this is your house, and it’s actually registered in another person’s name that’s a local, people just kick you out. They’ll say this is not your house. So I’ve heard stories of that nature too.
A lot of downside comes with popularity, but it’s not all that bad. I like to be balanced and speak about both sides. I hope that answers your question, Jordan. There are a few things like that that are a little bit annoying, but nevertheless, Bali continues to grow in touristic ways, at such a fast pace, that I think it’s going to be beneficial for the local people as well as the overall island economy.
Jordan Roy-Byrne: Okay Tiho, I know we’re going to get into the stock market and the currency, but the last question on real estate, do you own anything there in Bali? Have you considered buying anything there? And if so, would it be for leisure or for investment purposes?
Tiho Brkan: Well, that’s a great question, and I think we covered that in our Singapore episode. I haven’t invested in Bali. I have been thinking about it and looking very closely. I do follow the market very closely, and I am looking at opportunities. I would be considering to invest in Bali on a leasehold basis, maybe. And I will be looking at personal enjoyment and leisure as you said, and while I’m not there, I would still, obviously, rent it out and get the benefits of the growing tourism.
So I think it’s like two birds can be hit with one stone. I really like the place from the personal aspect, and I could see myself spending maybe two to three months a year there and especially during the time when Northern Hemisphere is in winter. Some of the recent winters have been quite cold. This winter has extended all the way into April, and it just seems like it’s never-ending. So from that aspect, you might want to consider having a retreat in Bali, and escaping the winter, if you have the global lifestyle. And that could be a huge advantage in your personal life.
Generally speaking, also, Bali offers very high yields. In some cases, I’ve seen villas that yield over 12% to 14% with occupancy rates at about 85%. This is gross yield mind you, so after certain costs, you’re still achieving double-digit returns annually. So if you can spend a certain amount of time in your villa and enjoy it, and then also get a very solid return for the rest of the year by having the right location and the right price and the right villa to attract the customers and the right marketing, then I think Bali is very, very interesting.
Jordan Roy-Byrne: Okay Tiho, now let’s move on and talk about the stock market and the currency. First, let’s talk about the main ETF. I know you mentioned earlier that Indonesia has two ETFs. How has the market performed in recent years?
Tiho Brkan: Well, in recent years Indonesia has been recovering from the emerging markets slowdown and the Chinese stock market crash, which occurred around August 2015 and lasted into January and February of 2016. The drawdown was about 50% for the Indonesian market up to that point. So that’s similar to what the United States experienced in 2008, but obviously, the Indonesian stock market doesn’t get as much press as it’s not as important in global asset allocation as United States assets are. And therefore, the sharp downturn hasn’t been felt as much.
We’ve seen a recovery since then, however, the Indonesian stock market has been stuck in a range since 2011, which corresponds to the US dollar bottom, and the bull market that began in May of 2011. So Indonesian stocks have kind of underperformed over the last five to six years.
Looking at a longer-term picture, Indonesian stocks were decimated in 1998, as they fell by more than 90% during the Asian financial crisis in 1997 and all the way into October 1998 during the Russian bankruptcy when they bottomed out. And then we had sort of a double bottom in September of ’11, and the end of the dot-com bust in 2002.
From there, we saw a huge bull market and a massive rally, which was only briefly interrupted by the global financial crisis and the Lehman bankruptcy of 2008. The recovery was really, really swift, and the Indonesian market resumed its outperformance and made record highs by 2010. So the bull market in Indonesia stocks from 2001 until 2011 was fabulous.
Indonesian stocks increased by such a huge amount. Obviously, you had to be savvy enough to buy them after the crash of the Asian financial crisis. However, due to such strong performance in the last decade, Indonesian stocks are naturally and obviously, consolidating and they still are on the more expensive side, Jordan.
Jordan Roy-Byrne: Okay Tiho, now let’s talk about valuation. Is the Indonesian stock market cheap or expensive in your view? And how does that compare to other countries in the region?
Tiho Brkan: Okay, so first of all, Indonesian stock market is not as expensive as the United States or Denmark, or even Switzerland, in my opinion. Having said that, it’s not on the attractive side. While the cyclically adjusted price to earnings ratio is about 20, which is not overly expensive nor is it cheap, the price to book is over three times, so that’s where I’m a little more cautious.
When we compare Indonesia to its neighbors, such as Malaysia, Singapore, and the Philippines we find that the Philippines is similar to Indonesia. It’s not attractive as it’s also trading at high valuations after the previous strong performance. Malaysia and Singapore is a lot more attractive side.
In particular, Singapore, which is in a very cheap basket as I would call it, and Malaysia is not too far either. So I would restrain myself from purchasing Indonesian stocks unless they were to break out technically from the current consolidation and the ascending triangle pattern, which has been forming for the last several years.
Jordan Roy-Byrne: Okay Tiho, now moving on, let’s talk about the currency. What do you see going on here?
Tiho Brkan: Okay, so this is maybe why tourism is booming in Bali in particular. The currency is back to the levels of the 1998 crash. Indonesian currency, called Indonesian Rupiah, was trading at about 2500 to 3000 Rupiah for every single US dollar in 1997. So it went from 3000 to 1 US dollar, towards 14,000 or even 15,000 for one US dollar within a year. So Indonesia suffered a huge crash. Obviously, the stock market went down by over 90%. The overall economy was affected on a large scale.
Since then, we’ve had kind of a like a large consolidation, and a trading range for the Indonesian Rupiah against the US dollar. US dollar would not strengthen above 12,000 for about a decade, or a decade and a half, and it would not weaken below let’s say 8,000. So it was quite a tight trading range and even during the global financial crisis, there was not that much of a shock. It was decent, but not a major one like 1997, 1998 period.
But in recent years, since the US dollar entered a bull market, the Rupiah has been suffering. Since 2011, it has declined from about 8,000 Indonesian rupiahs per one US dollar towards 14,000 so we’re back to that level of 1997, 98. And one US dollar gets you a decent amount of Indonesian Rupiah, and if you consider the inflation over the last two decades as well, that’s pretty good.
So right now, the Indonesian Rupiah seems to be hanging on by a thread around this important level as the US dollar might attempt to break out. So the question, will the Indonesian Rupiah weaken over the coming years if the US dollar has another strong rally? If so, it will have certain implications for those investing in property, as well as for the stock market too, despite the fact that the stock market is priced in US dollars.
In particular, for Bali property, if you can time it right, and convert your currency into Indonesian Rupiah from US dollars, at the right time whenever the Indonesian rupiah falls, you could get more Rupiah for every dollar you have. Therefore you could end up buying some property at a much, much better discount due to the currency exchange. Especially if you’re quick enough to do it because currency markets move a lot faster and move so much faster than the real estate market does.
And some of the vendors could be selling their villas for x amounts of millions of Indonesian Rupiah. If you have a dramatic move within like 10 to 12 weeks in the currency, you could quickly go and say, hey, I would like to buy this property before a lot of the people even realize what the exchange rate has happened and how they should adjust that to their properties. So sometimes there’s an opportunity of arbitrage there.
Jordan Roy-Byrne: Well it sounds fantastic Tiho. You’ve got me convinced.
Tiho Brkan: Well, that’s good, maybe next time we do a trip together or something. And I’ll show you around, as long as you like the sea, the ocean, and the sand. Sometimes, when you go with a group of people that don’t really like those things, they kind of do their own things and miss the whole point of Bali. They go around and they get stuck in traffic and they don’t really understand that they’re missing out on all the cool spots and all the cool things to do. So I think it’s important to be doing the right things in Bali for what Bali was made for. That means enjoying the nature, the sea, the sun, and the surf, and the sand. The four Ss.
Jordan Roy-Byrne: Absolutely, your points are very well taken. Now, speaking of attitude Tiho, I want to hear your attitude towards the stock market, because it’s been a little while since we’ve covered that on the podcast. And I know you’re going to be discussing that in episode 15, do you want to whet our appetites just with a comment or two on what we’re going to cover in that next podcast?
Tiho Brkan: Yes, so on the 12th of March, we had the S&P 500 peak, and we’ve had a decent corrective move on the downside towards early April. Now the S&P seems to be consolidating in a range between support and resistance on an intraday basis.
On the next episode, we’ll be discussing the moves in the stock market and whether we’re going to go and crack below the 200 moving day average, which has been holding support for the time being, or whether we will break out on the upside, from what seems to be some kind of a small basing pattern.
So whether you’re a bull or bear you can see different things at present. Is it a consolidation before more downside or is it a building base and the correction is finally over before we get more upside? We will be discussing that in the next podcast.
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