(Updates overseas investor data in 10th paragraph.)
Nov. 18 (Bloomberg) -- Indonesia’s benchmark stock index, Asia’s third-best performer this year, may rise as much as 15 percent in 2012, bolstered by economic growth that’s outpacing most countries in the region, according to Federated Investors Inc., which manages about $350 billion of assets.
Federated bought Indonesian real-estate, consumer food products and auto stocks last month to tap into Southeast Asia’s biggest economy, which is forecast to expand more than 6 percent next year, Geoffrey Pazzanese, a New York-based fund manager said in a telephone interview on Nov. 14. Indonesian stocks may outperform Asian peers next year as investors look beyond the “overexposed” emerging markets of Brazil, Russia, India and China for growth, he said.
“Growth is scarce,” said Pazzanese, who helps manage the $800-million Federated InterContinental Fund, 8 percent of which is invested in Indonesia. “As investors are putting money to work, Indonesia is an obvious target.” His fund returned 17 percent last year, beating 81 percent of its peers, according to data compiled by Bloomberg.
The Jakarta Composite Index has gained 1.5 percent this year, Asia’s third-best performer after gauges in Mongolia and the Philippines. The gauge outpaced benchmark indexes in China and India, where accelerating inflation prompted policy makers to raise interest rates, curbing growth. The Indonesian central bank cut rates to a record low last week as inflation eased.
Pazzanese estimates the Jakarta Composite will rise between 10 percent and 15 percent in 2012. The gauge climbed 46 percent in 2010 and 87 percent in 2009.
PT Astra International, Indonesia’s biggest auto retailer, and PT Bank Rakyat Indonesia, the largest lender by revenue, are the Federated fund’s two biggest Indonesian holdings, said Pazzanese, who has 12 years of international investment experience. Astra International has climbed 26 percent this year, while Bank Rakyat has jumped 28 percent.
Pazzanese, whose Federated InterContinental Fund won a 2011 Lipper award, beating 49 other funds for 10-year performance through the end of 2010, declined to identify other stocks he favors.
Pittsburgh-based Federated was founded in 1955 and manages $28 billion in stocks, of which $1.8 billion is in international or global equities, according to the company’s Sept. 30 quarterly report posted on its website.
China’s economic growth slowed to 9.1 percent in the third quarter after the nation raised interest rates three times this year. India increased its repurchase rate 13 times since March 2010 to 8.5 percent, contributing to a slowdown in second- quarter economic growth to 7.7 percent.
The Jakarta Composite trades at 14.9 times estimated earnings, compared with 10.1 times for the MSCI Emerging Market Index. Overseas investors bought a net 22 trillion rupiah ($2.43 billion) of Indonesian equities this year through yesterday, compared with 20.46 trillion rupiah a year earlier. The Jakarta Composite Index fell 0.9 percent to 3,757.51 at 11:13 a.m. local time.
Bank Indonesia reduced its benchmark interest rate on Nov. 10 to a record low of 6 percent as inflation slowed and the debt crisis in Europe threatened to curb demand for the country’s exports. The economy is forecast by the government to expand 6.5 percent this year, the fastest since 1996.
Global emerging markets shares may rise 13 percent next year, with Indonesia, Thailand and the Philippines benefiting from a “strong underlying consumption and investment cycle,” UBS AG wrote in a Nov. 14 note, citing the three countries among its most favored markets along with China, India and Brazil. Consumer spending made up about 54 percent of Indonesia’s economy in the third quarter, data from the nation’s statistics office show.
Corporate earnings were “good” and the outlook is improving, Pazzanese said. Net income reported by companies in the MSCI Indonesia Index for the latest quarter exceeded analyst estimates by 2.6 percent, according to data compiled by Bloomberg. Earnings reported by companies in the MSCI Emerging Markets Index missed estimates by 28 percent, the data show.
Still, poor infrastructure hampers Indonesia’s growth as companies are forced to overcome logistical hurdles, Pazzanese said. “There are too many bottlenecks,” he said.
Corruption, government inefficiency and poor infrastructure were among reasons cited in the World Economic Forum’s 2011-2012 Global Competitiveness Report for Indonesia falling two places to 46th out of 142 economies. Indonesia plans to boost capital spending 19 percent next year, building infrastructure to spur the economy, President Susilo Bambang Yudhoyono said on Aug. 16.
Foreign direct investment rose 16 percent last quarter, the nation’s investment coordinating board said Oct. 20. Caterpillar said on Nov. 11 it plans to open a $150 million truck plant in Indonesia. Toyota Motor Corp. plans to build a 2.9 trillion- rupiah factory, while Astra’s auto part unit and Pirelli & C. SpA agreed to build a $90 million tire plant.
Astra, which sells Toyota cars, reported vehicle sales in September jumped 73 percent from a year earlier. Bank Rakyat posted a 57 percent jump in nine-month net income, driven by lending growth.
“China and Brazil are well into their development of consumer demand for loans and business demand for loans,” Pazzanese said. “Indonesia is really at the beginning.”
--Editors: Matthew Oakley, Darren Boey
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