Analyst sees nice deals in RI stocks

Analyst sees nice deals in RI stocks

HONG KONG (Reuters): Regional investors are overplaying political risk and passing up bargains in Southeast Asian equities, including Indonesia, says Aaron Pong, a director of fund managers RBC Investment Management (Asia) Ltd.

Pong says Indonesia and the Philippines offer the best buying opportunities among regional equities as interest rate-sensitive stocks run out of steam, the World Trade Organization (WTO) story is factored into many China stocks and Thailand's equity market has already had a good run this year.

"Obviously Indonesia is only for very high-risk tolerant investors," said Pong, whose company manages US$300 million worth of assets in Asia excluding Japan.

"I think there is more than a 50 percent chance that Wahid (President Abdurrahman Wahid) won't survive. But regardless of whether he goes or not I would focus on companies with strong levels of cash, low gearing and strong earnings like the two tobacco stocks because they will prosper whoever is president."

Indonesia's two key tobacco firms are PT Gudang Garam and PT HM Sampoerna

If touting Indonesia seems foolhardy, Pong does have a rationale.

While political crises, social unrest and earthquakes dominate the headlines, consumer spending is robust and Jakarta has upwardly revised its gross domestic product (GDP) forecast for this year to a possible six percent.

GDP growth last year was about 4.5 percent and in 1999 was zero.

"We think the market has digested the bad (political) news and that the rupiah is undervalued," said Pong. As a net exporter of oil the country should also benefit from the recent rise in the oil price, he says.

His stock picks, however, are confined to just a handful of companies.

In addition to the two tobacco plays, the other preferred Indonesian counters are domestic phone operator PT Telekomunikasi Indonesia and international phone company PT Indosat, both of which will be privatised this year, and its biggest car maker Astra International as car sales in the country are buoyant.

"You have to stay with the most liquid stocks because those are the ones foreign investors are going to buy first when they go back to the market," Pong said.