JSX offers chance for long-term, selective buying: Fund managers
JSX offers chance for long-term, selective buying: Fund managers
HONG KONG (Reuters): It could still all end in tears, but the
Indonesian stock market offers plenty of opportunity for long-
term investors, Asian fund managers say.
Jakarta's JSX Composite index continued to ebb lower on
Thursday with concern about the slow pace of ballot-counting
offsetting Tuesday's euphoria, when the stock market soared as
much as 14 percent on Indonesia's surprisingly peaceful -- but
slow -- transformation into the worlds third largest democracy.
But the reasons for fresh optimism about Jakarta reach far
beyond politics, fund managers say. The market potential is so
strong that recent election euphoria will soon be remembered only
as one blip along a lucrative long-term road, they predicted.
Among key facts to remember about the Jakarta stock market is
that 100-percent inflation has distorted the value of the
composite index, which remains down more than 50 percent from its
pre-crisis high in U.S. dollar terms.
"This market remains pretty underpriced by comparison to where
it was. It was the largest falling market from peak to bottom,"
said Stewart Aldcroft, director of sales and marketing for
Templeton Franklin Investors (Asia).
Templeton says Jakarta will become the best performing market
in Asia this year.
In addition, a number of analysts remain convinced the rupiah
is under-valued, suggesting even better U.S.-dollar returns for
investors now waking up to Jakarta's inflation-adjusted value.
"Not only will the market rise in domestic currency terms but
as the market rises the rupiah will give it a kicker and it
stands out for international investors on those terms," said
Peter Perkins, regional strategist at Daiwa Research.
The problem for international investors, however, remains
market liquidity.
Jakarta's market capitalization has shriveled to roughly $25
billion from more than $70 billion pre-crisis -- and of the
composite index's 271 constituents, only four stocks are of an
appropriate size to allow international investment.
Telkom Indonesia dominates the index with a weighting of
nearly 15 percent, followed by consumer products conglomerate
Gudang Garam with a weighting of 12.39 percent according to
Reuters 3000.
Both these stocks have massively outperformed the main index,
with Telkom Indonesia reporting a PE multiple of 39 times against
an index average of four, while Gudang Garam's PE is at 33 times.
"It doesn't take much to move this market. Individual Bunters
are moving this," said Anand Aithal, strategist at Goldman Sachs.
Perkins added that there was evidence individual punters in
Indonesia were moving bank deposits back into the stock market
where there were plenty of mid- and small-sized bargains to be
had.
Aithal backed a highly selective approach, advocating a long-
term view that focused on the overall economy and the
restructuring challenges ahead. Political considerations were
relevant only in that they dictated an aversion to stocks linked
to former president Soeharto.
"You must go stock by stock, and if you find companies that
are levered to economic recovery you're probably okay," he said.
For international investors, direct investment remains a more
important indicator of recovery than the stock market, added
Aldcroft, who stressed the importance of the Indonesian Chinese.
There has been concern that rising tension in Indonesia could
fuel an exodus of people from the country, particularly the
country's economically dominant ethnic Chinese.
"A large proportion of the money that left last year belonged
to Chinese who felt disenfranchised, and it's very important for
the future of Indonesia that these people are given some
encouragement to tern hark," he raid.