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How the spread in the emerging markets crisis to Indonesia could hit your share portfolio

The meltdown in the Turkish economy is spreading fast and our largest neighbour Indonesia is coming under pressure as its currency, the rupiah, crashed to a 20-year low.

The crash coincided with Prime Minister Scott Morrison’s trip to the country to seal a new trade deal as the rupiah tumbled to 14,750 to one US dollar – the lowest since the 1998 Asian economic crisis, according to Bloomberg.

This could impact on your share portfolio and it isn’t just through contagion from the deepening emerging markets crisis.

The good news is that the potential impact from Indonesia should be fairly well contained as there are relatively few Aussie companies operating in the world’s most populous Muslim country compared to other Asian countries like China, where a whole range of leading companies from miners like BHP Billion Limited (ASX: BHP) to consumer goods supplier A2 Milk Company Ltd (ASX: A2M) have staked their future.

It remains to be seen how deeply affected Indonesia will be, but sceptics are predicting more gloom as emerging economies like Turkey and Indonesia have a large current account deficit and are heavily reliant on overseas investors to fund their budgets.

The more obvious S&P/ASX 200 (Index:^AXJO) (ASX:XJO) company with material exposure to the Indonesian economy is Coca-Cola Amatil Ltd (ASX: CCL). The Coke bottler will be particularly sensitive to any pressure on the country’s currency or economy.

Coca-Cola Amatil’s Indonesian business is already underperforming, and a falling rupiah will further dent earnings when translated to Australian dollars.

Waning consumer confidence in that country from the fallout of the emerging market (EM) crisis will also have a big impact on sales of its beverages in that market.

Shareholders in Rio Tinto Limited (ASX: RIO) will keep their fingers crossed that the shake-out of the rupiah won’t impact on the sale of its Grasberg mine to Indonesia’s state-owned mining company, Inalum, for US$3.5 billion.

Unless Inalum has locked in the exchange rate, the deal could cost it significantly more to complete now.

But it isn’t all bad news for Aussie miners operating in Indonesia. Newcrest Mining Limited’s (ASX: NCM) 75%-owned gold and silver mine Gosowong sells its commodities in US dollars and the lower rupiah will help pad margins.

Meanwhile, the gloss from the removal of tariffs on Australian grain that Morrison has just managed to secure with Indonesia could be dulled by the emerging crisis.

Companies like logistics group Qube Holdings Ltd (ASX: QUB) should theoretically benefit from any increase in grain exports (after we recover from the drought of course) but we shouldn’t bank on any material boost to revenue just yet.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Coca-Cola Amatil Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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