Indonesia’s Pricier Stocks Than China Won’t Slow Gain, AMP Says
March 18, 2010, 8:48 PM EDTBy Berni Moestafa
March 19 (Bloomberg) -- Indonesia stocks may rise a further 15 percent this year, extending Southeast Asia’s best rally as the nation’s earnings prospects allow for prices that are higher than those in China, according to AMP Capital Investors.
The Jakarta Composite index has risen 8 percent in 2010, pushing prices of the 399 companies in the benchmark measure to 32 times reported earnings, the highest in Asia after Taiwan and exceeding Shanghai Composite Index’s 31.5 times. On estimated earnings, Indonesia shares trade at a multiple of 14.5, lower than the Shanghai gauge’s 17.6 times.
“Valuations based on historical earnings are quite high, slightly above China’s, but if you look at forward earnings, they are actually quite reasonable,” Shane Oliver, Sydney-based head of investment strategy at AMP Capital, which manages $90 billion, said yesterday in an interview.
Indonesia’s benchmark index, which rallied 87 percent in 2009, may rise to 3,150 by the end of the year as faster economic growth boosts earnings, Oliver said. The nation’s companies will probably have average profit growth of 20 percent this year and next, he said. The measure slid 0.7 percent to 2,737.24 yesterday.
Indonesia’s valuations overtook China’s on March 12, the first time in five months. The last time this occurred, Indonesian stocks were able to sustain their higher multiples for only two weeks.
Southeast Asia’s biggest economy is estimated to grow as much as 6 percent this year, according to the Indonesian central bank, which on March 11 raised its estimate from 5.6 percent. The nation expanded 4.5 percent in 2009, avoiding a recession that hit almost all of its neighboring countries.
Low Rates
Bank Indonesia kept its benchmark interest rate on March 4 at a record low of 6.5 percent for the seventh straight month to spur economic growth. Standard & Poor’s raised the sovereign debt rating on March 12 to its highest level in 12 years.
Indonesia’s economic acceleration provides a case for its inclusion among the BRIC economies, Morgan Stanley said in a report to clients last year, referring to the nations of Brazil, Russia, India and China.
Gains in Indonesian shares may stall if the U.S. economy “double dips,” which would lead renewed concern over Asian exports or if China tightens its monetary policy more than expected, Oliver said.
Indonesia has overtaken Cambodia as the most corrupt country in the Asia-Pacific region in the eyes of business executives, according to an annual survey by Hong Kong-based Political & Economic Risk Consultancy Ltd.
‘Sell Hard’
The world’s biggest companies are still vying for business in Indonesia as growth slows in their home countries. General Electric Co. Chief Executive Jeffrey Immelt wants U.S. President Barack Obama to “sell hard” in Indonesia during his scheduled visit next week, which has been delayed until at least June. Immelt included Indonesia among nations that may provide the growth “surprise” of the next decade.
Even as Indonesia stock valuations reach parity with China’s, overseas investors are still bullish on the archipelago’s prospects. Foreigners have bought a net 3 trillion ($328 million) of Indonesian equities since last week, making them net buyers for the year. The Indonesian rupiah rose 3 percent against the dollar this year, Asia’s third-best performing currency.
“People are just waking up to” Indonesia’s growth potential, said Kenny Soejatman, who helps manage $1.55 billion at PT Mandiri Manajemen Investasi in Jakarta, referring to the increase in fund flows.
China Falters
The Shanghai Composite has lost 7.1 percent this year, the fifth-worst performer among 93 global benchmark indexes tracked by Bloomberg, after the government twice increased the proportion of deposits banks need to set aside as reserves and re-imposed a tax on home sales to prevent asset bubbles. China is in the midst of “the greatest bubble in history,” James Rickards, former general counsel of hedge fund Long-Term Capital Management LP, said on March 16.
Oliver likes consumer related stocks, citing the nation’s domestic consumption, declining to name individual stocks.
Shares of PT Gudang Garam, the nation’s second-largest cigarette maker, rose 27 percent this year, outperforming the benchmark index’s advance. PT Astra International, Indonesia’s largest auto retailer that sells Toyota Motor Corp. vehicles and Honda Motor Co. motorcycles, posted a record profit in 2009. Astra’s shares have risen 16 percent this year.
“It’s a reasonable well-managed economy,” Oliver said. “Foreign investors are taking a more positive view of Indonesia than might have been the case a few years ago.”
--Editors: Allen Wan, Linus Chua
To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net
To contact the editor responsible for this story: Linus Chua in Singapore at lchua@bloomberg.net
