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Indonesia's Stocks May Extend Bull Run on Earnings Outlook, Bahana Says
Indonesia’s stocks, the first in Asia to enter a bull market since the peak of the European debt crisis in May, may extend gains as first-half earnings beat analyst estimates, PT Bahana TCW Investment Management said.
The Jakarta Composite index may rise 3.4 percent to 3,200 by the end of the year as banks and consumer companies report “strong” earnings, said Soni Wibowo, vice president of Bahana, the nation’s second-best performing fund. Analysts are poised to boost their profit forecasts for the nation’s companies, increasing their appeal on a valuation basis, he said.
“Our rebound was faster as companies here have better return on equity and the economic growth prospect is more stable than that of our peers,” Wibowo, who helps manage $1.7 billion at Bahana, said in an interview in Jakarta today. “Stock valuations are neither expensive nor cheap but if profits are improving, there’s room for stocks to turn a bit cheaper.”
The benchmark stock index has risen 22 percent this year, the best performer among Asia’s 10 biggest markets, as record- low interest rates accelerated growth in Southeast Asia’s biggest economy and boosted earnings.
The measure climbed 1.3 percent to a record 3,096.82 at the close, the biggest gain among Asian markets today. The increase extended the advance to 23 percent from its May 25 low.
Indonesia is the first among the 10 biggest markets to increase 20 percent from the global selloff in May. The magnitude of the gain is defined by analysts as a bull market.
Valuations
This year’s rally has lifted the estimated earnings of the 409 companies in the measure to 15.4 times, compared with 14.4 times on the MSCI Asia Pacific Index, according to data compiled by Bloomberg.
PT Jasa Marga, an Indonesian toll-road operator, is poised to beat analysts’ earnings forecasts for this year after posting first-half net income of 647.6 billion rupiah ($72 million). The company is expected to post a profit of 1 trillion rupiah for 2010, according to the median of 15 analyst estimates compiled by Bloomberg.
PT Bank Negara Indonesia, the nation’s third biggest state- owned bank, may double its net income this year, President Director Gatot Suwondo said this week. That compares with a 50 percent increase analysts forecast. Publicly listed companies have until the end of this month to file their first-half financial statements.
‘Structural Growth Story’
Indonesia’s return on equity reached a low of 18.2 percent amid the global financial crisis of 2008 and 2009, Credit Suisse Group AG’s analyst Sakthi Siva said in a report today. That compares “favorably” with the 10 percent average for global emerging markets and tops all four of the largest developing nations of Brazil, Russia, India and China, the brokerage said.
“While proponents of the structural growth story for Indonesia tend to focus on the large young population, rapidly rising per capita GDP and domestically-led growth, we are more attracted by Indonesia’s structurally high ROE and low credit penetration,” said Siva, the top-ranked strategist in Institutional Investor’s 2010 Asian poll.
Inflation concerns may escalate in the next few weeks because of high food prices and the electricity tariff increases, Helmi Arman, an economist at PT Bank Danamon Indonesia, said on July 20. Consumer prices increased 5.1 percent in June, the fastest pace in Southeast Asia after Vietnam, according to data compiled by Bloomberg.
Low Borrowing Costs
The central bank on July 5 kept its benchmark interest rate at a record low of 6.5 percent for an 11th month. The country has held back from tightening monetary policy even as neighbors from Malaysia to India raised borrowing costs this year to avert asset bubbles and contain inflation in a region that’s leading the global economic recovery.
Indonesia’s interest rate is at the lowest level since it was introduced in July 2005. The government expects economic growth to accelerate to 5.9 percent this year from 4.5 percent in 2009, as domestic consumption helped offset any impact from the European debt crisis.
“The domestic story is more interesting than then export- oriented sector as the global setting isn’t too attractive,” said Wibowo, whose Bahana Optima Protected Fund 18 returned 91 percent this year, according to data compiled by Bloomberg.
To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net
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