Analysts bullish on RI's consumer stocks
Analysts bullish on RI's consumer stocks
SINGAPORE (Dow Jones): In a good quarter for funds investing
in Indonesia, a big bet on consumer stocks saw Indocam Asset
Management's Malacca Fund go one better: Indocam's fund gained
nearly 196 percent in U.S. dollar terms in the second quarter,
according to fund trackers Lipper Inc., compared with a sector
average gain of 119 percent.
On average, Indonesian funds beat all other worldwide sectors
in the three months ended June 30, according to Lipper.
Thanks to a plunge in interest rates, currency gains and a
stable political climate as Indonesians went to the polls,
Jakarta's main stock index rose 68 percent during the quarter, or
112 percent in U.S. dollar terms.
Singapore-based Indocam fund manager Jenny Sofian bet that
falling interest rates would stoke domestic demand, propelling
the shares of companies that cater to consumers.
"We benefited because we were early in investing in consumer
stocks," Sofian says. "We were seeing interest rates come down
all across Asia, but in Indonesia we were seeing inflation come
down faster, so we decided to load up on consumer stocks."
The sector's second-best-performing fund in the second
quarter, the Dresdner RCM NT Indonesia fund, gained 170 percent.
During the second quarter, Sofian boosted the fund's holdings
of consumer stocks to 53 percent of assets, from about 35 percent
in the first quarter. At the same time, she trimmed the fund's
telecommunications holdings to 4% of its portfolio from 14
percent and its 22 percent cash position to zero.
While the fund would also have benefited from holding cash,
given the Indonesian rupiah's 34 percent gain against the U.S.
dollar, it got more mileage from being invested in stocks.
During the quarter, the share price of pharmaceutical concern
PT Kalbe Farma almost tripled, while car maker PT Astra
International jumped about 150 percent. The two stocks are among
the fund's 10 largest holdings.
Sofian says the Indocam fund also benefited from having 11
percent of its assets in capital-equipment stocks - the fund's
second-largest sector weighting - such as PT Komatsu Indonesia
and PT United Tractors.
The share price of Komatsu rose 117 percent, while United
Tractors increased three-fold. They were a play on a return to
economic growth - and the rebuilding of infrastructure damaged
during Asia's financial crisis, she says.
The economy is set to grow 1.5 percent to 2.5 percent this
year, up from a previous forecast of flat to 2 percent growth,
and a contraction last year of 13.7 percent. Despite the
confident growth forecast, analysts expect it will take several
years before Indonesia will return to its 7 percent pre-crisis
growth levels.
Another second-quarter bet: bank stocks. Sofian raised banks
to 9 percent of assets from 3 percent in the first quarter,
cheered by strong management at some banks and progress made on
recapitalizing banks under the Indonesian Bank Restructuring
Agency.
Sofian expects to keep a big chunk of the fund's money in
consumer, capital-equipment and banking shares. But she warns
that a repeat of the stellar performance in the second quarter
isn't probable.
Sofian expects gains will taper off to about 20 percent over
the next 12 months. That's because benchmark one-month Sertifikat
Bank Indonesia, or SBI, rates having already fallen to around
15.86 percent from around 80 percent last year, are already
believed to be near the floor. Now, she says, share price
movements will depend far more on the outlook for earnings at
individual companies.
"In the second quarter, we saw gains related to low valuations
and stocks enjoyed the benefit of a liquidity push," Sofian says.
"But from here we have to see evidence emerge of a real return to
overall earnings growth."
The rate of increase in Indonesia's stock market is likely to
slow, agrees Robert Subbaraman, an economist with Lehman Brothers
in Japan.
"Over the long term, the economy still has severe structural
problems in the financial and corporate sector," he notes. "In
the next six months there are risks that there could be some
setbacks."
The most immediate risk to many analysts: that political
jockeying before presidential elections slated for November could
shatter the current calm and weigh on the strength of the
Indonesian currency.
"Politics is going to come back to the fore when we get closer
to the time when the president is chosen," says Daniel Fineman,
regional strategist with Jardine Fleming in Hong Kong. "The
political situation is still rife with uncertainty and could
cause sentiment to turn negative in September and October."
But economists expect any administration selected in November
to continue with economic policies in line with prescriptions of
the International Monetary Fund. This would lay further
foundations for a recovery in corporate profit growth.