Indonesian Stocks May Extend Best Gain in Top 10 Asian Markets, Panin Says

Indonesian stocks will extend the best performance among Asia’s 10 biggest markets this year after the central bank kept interest rates at a record low this week to boost growth, according to the nation’s No. 2 fund.

The Jakarta Composite index may climb as much as 9.9 percent to a record 3,200 by yearend, PT Panin Sekuritas Director Winston Sual said. Equities on the gauge are valued at 29 times reported earnings, the most expensive in Asia excluding Japan, and are at the highest premium against the MSCI AC Asia Pacific excluding Japan Index since the start of 2003, according to data compiled by Bloomberg.

“The valuation is justified if we consider Indonesia’s economic and corporate earnings growth,” Sual, who helps oversee 3.5 trillion rupiah ($385 million), said in a phone interview in Jakarta today. “Our monetary policy is a bit different from other countries as inflation is still at a manageable level.”

The Jakarta Composite has risen 15 percent this year as faster economic growth boosts earnings at companies such as PT Astra International, the largest auto retailer. The index on June 21 neared an all-time high as Moody’s Investors Service raised the country’s sovereign debt rating outlook to positive.

The Jakarta Composite yesterday climbed 1.2 percent to 2,910.65. That compares with a record close of 2,971.25 on April 30 and intraday high of 2,996.42 on May 4. The Panin Dana Maksima fund managed by Panin Sekuritas has risen 37 percent this year, the second-best performer among 478 Indonesia- domiciled funds tracked by Bloomberg.

Gajah Tunggal

Suel recommends PT Gajah Tunggal as the nation’s biggest tire maker will benefit from rising vehicle sales. On Nov. 26, he correctly predicted that PT Gudang Garam, Indonesia’s second- largest cigarette maker, will lead consumer stock gains this year. Since then, Gudang Garam has doubled, the biggest jump among the 31 companies on the Jakarta Consumer Goods Index.

Bank Indonesia kept its benchmark interest rate unchanged at a record-low 6.5 percent on July 5 for an 11th month as it seeks to strengthen economic growth before responding to faster inflation. The central bank held out as Asian peers including Taiwan, India and Malaysia raised borrowing costs this year.

“With interest rates still low, the market will probably stay flush in liquidity while the cost of funds tends to decline,” Panin’s Sual said. “These are the things that give the stock valuation the potential to rise further.”

‘Large Redemptions’

Even so, a decline in commodities prices is likely to drive emerging-market stocks lower in the third quarter, JPMorgan Chase & Co. analysts led by Adrian Mowat said in a July 4 report. The “markers” of a correction in emerging-market stocks will be “large redemptions” in commodity funds and a slump in crude oil prices below the May low of $65 a barrel, the report said.

The Jakarta Mining Index has underperformed the broader market this year, gaining 2.4 percent after crude oil prices sank 9.1 percent, reducing prospects for coal and natural gas prices that typically reflect trends in the oil market. Indonesia is the world’s largest exporter of power-station coal.

Growth in Southeast Asia’s biggest economy may accelerate to 5.6 percent this year from 4.5 percent in 2009, according to a central bank forecast. Low interest rates help boost consumer spending, which accounts for about two-thirds of the economy.

Domestic vehicle sales in March jumped 92 percent from a year earlier, helping first-quarter profit at PT Astra International to soar 61 percent.

Bank Indonesia is keeping its inflation target at 4 percent to 6 percent this year and doesn’t see the need to change its monetary policy, Senior Deputy Governor Darmin Nasution said July 2. Indonesia’s consumer prices rose 5.05 percent in June, the biggest gain since May 2009, on higher food costs, a report showed July 1.

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

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