Indonesia’s biggest pension fund is preparing to put more money into stocks and bonds, betting the fastest pace of economic growth in Southeast Asia will continue.
PT Jaminan Sosial Tenaga Kerja will raise its holdings of consumer, construction and banking-related stocks that are poised to gain from a bigger middle class and government infrastructure spending, President Director Elvyn Masassya said in a Nov. 8 interview in Jakarta. The state-owned institution, known as Jamsostek, will increase its corporate-bond investments to seek better returns as yields on government notes fall toward a record low reached in February, Masassya said.
“For 2013, we will keep reducing our investments in time deposits and raise the allocation in stocks, bonds and direct investments,” Masassya said. “We are still predicting economic growth will be above 6 percent next year, probably around 6.3 percent-6.4 percent.”
Record-low interest rates have helped Southeast Asia’s biggest economy expand more than 6 percent for the past eight quarters, with growth outperforming every major Asian economy except China this year. The central bank held its benchmark interest rate last week at 5.75 percent for a ninth month, even as consumer prices gained by the most in 13 months.
Jamsostek, which allocated 33.1 percent of its 130 trillion rupiah ($13.5 billion) of funds in time deposits as of October, will lower the proportion to 28 percent next year, the minimum level allowed, Masassya said. It will increase its holdings in stocks and bonds to the maximum ceiling of 22 percent and 48 percent respectively, he said.
The fund will review its investment guidelines for the next five years in 2013 to further increase the maximum limits allowed into equity and debt, as well as raise the combined ceiling for property and direct investments to as much as 10 percent from 5 percent currently, Masassya said.
Indonesia’s economy may expand 6.6 percent next year, compared with the 6.8 percent forecast in the government’s budget, Vice Finance Minister Anny Ratnawati said in an interview on Nov. 7. That would be the fastest growth since before the 1997-1998 Asian financial crisis, according to data from the International Monetary Fund.
Bank Indonesia may have to increase its reference rate to as high as 6 percent next year to manage faster inflation and a potential outflow of funds from banks to capital markets, Masassya said. Inflation may accelerate to 5 percent next year due to higher electricity prices, Perry Warjiyo, Bank Indonesia’s executive director for economic research and monetary policy, told reporters on Oct. 12.
“We have to adjust our placement to companies with less sensitivity to higher interest rates,” Masassya said. “Banking is an example. Cost of funds will rise and increase their risks, though this isn’t true of all banks.”
While he declined to name specific consumer, construction or financial-related stocks that Jamsostek will buy, the three industries are closely linked to the “main drivers” of the economy, Masassya said.
Shares of Holcim Indonesia, the country’s third largest cement producer, jumped as much as 4.8 percent today while PT Semen Gresik rose 1 percent. Construction company PT Wijaya Karya gained as much as 2.5 percent and PT Pembangunan Perumahan advanced 2.5 percent.
President Susilo Bambang Yudhoyono has pledged to build more highways, airports and ports as part of a plan to bolster growth. The government will boost infrastructure spending to more than 200 trillion rupiah and will require monthly budget disbursement plans from ministries to speed projects, Vice Finance Minister Ratnawati said.
Jamsostek will increase its investments in corporate bonds to 35 percent of its fixed-income allocation, from 30 percent, to seek better returns as yields on government notes fall toward a record-low reached in February, Masassya said. Yields on local notes are expected to rise next year as the central bank begins tightening its monetary policy, he said.
“This year has been a party for issuers,” he said. “We will see more bargaining between issuers and investors next year as yields have reached their bottom this year.”
The yield on Indonesia’s benchmark 10-year notes was 5.56 percent on Nov. 9, the lowest level since March 1, prices from the Inter Dealer Market Association show.
Global funds increased their holdings of government debt to a record high of 255.3 trillion rupiah on Nov. 6, Finance Ministry data show. Overseas investors bought $1.7 billion more local stocks than they sold this year through Nov. 9, according to stock-exchange data.
The Jakarta Composite index (JCI) may reach 5,000 next year, from 4,333.64 as of the close of trading on Nov. 9, as rising incomes drive more Indonesians to invest in capital markets and on continued foreign inflows, Masassya said. The benchmark stock index has gained 13 percent this year.
Jamsostek’s total assets under management will increase by as much as 20 percent next year from an estimated 132 trillion rupiah by the end of this year, he said.
“In the last three years, our strategy has been to reduce our allocation in time deposits and increase investment into the capital market as we believe the economy will grow well,” Masassya said. “We will continue this in 2013.”
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