Indonesia is a good reminder that natural resources and a large population don't automatically make a country a great investment destination. Look at what's happening there. The MSCI Indonesia index has fallen roughly 50% in dollar terms in 2026, according to the chart. Foreign direct investment inflows, which surged to $16 billion in Q4 2024, have since stagnated. LG Energy Solution dropped plans for an $8 billion battery project. A $12 billion solar-panel-led industrial city backed by Xinyi has lost momentum. And the problems go well beyond the stock market. Under President Prabowo, Indonesia has tightened control over commodity exports, changed mining rules and increased state intervention. Businesses complain about regulatory uncertainty, while import restrictions have disrupted supply chains for companies such as Coca-Cola and PepsiCo. The consumer story is weakening, too. - Indonesia's middle-class share of workers fell from 16% a decade ago to 7% last year. - Only 9% of consumers in a recent NielsenIQ survey felt financially better off than a year earlier, versus 54% in 2024. - Unilever Indonesia's sales have fallen by a fifth since 2019, while operating profit has more than halved. Here's the investing lesson. A country can have nickel, coal, palm oil, a huge domestic market and headline GDP growth of around 5% yet still destroy shareholder value if policy uncertainty rises and consumers lose purchasing power. For investors, there are three separate questions: Is the economy growing? Are businesses earning attractive returns on capital? Can investors trust the rules governing those returns? These are very different questions. Indonesia's experience shows why country level growth forecasts alone are inadequate. Capital allocation, institutional quality, currency risk and the treatment of foreign investors matter just as much. The second-order effect is when companies lose confidence in a market, they can delay capex, redirect investment elsewhere and reduce future job creation. That can weaken the very consumption growth the government wants to promote. A resource rich country can attract capital once. Keeping that capital requires predictable rules. Would you invest in a fast-growing economy if you couldn't confidently predict the rules under which your business would operate? #Investing #EmergingMarkets #Indonesia #MSCI #TheEconomist Source: The Economist