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Indonesia ‘Sweet Spot’ to Drive Infrastructure Stocks Advance, Nomura Says

Indonesian infrastructure stocks are poised to advance as an $18 billion government spending plan boosts the outlook for shares in Southeast Asia’s largest economy, Nomura Holdings Inc. says.

Companies including PT Jasa Marga (JSMR), Indonesia’s largest toll-road operator, PT Semen Gresik (SMGR), the biggest cement producer, and PT Perusahaan Gas Negara (PGAS), the No. 1 gas distributor, may help drive a 15 percent gain in the benchmark Jakarta Composite Index in 2012, Wilianto Ie, Nomura’s head of equity research for Indonesia, said yesterday.

Indonesia’s President Susilo Bambang Yudhoyono plans to boost government spending by 19 percent to 168 trillion rupiah ($18 billion) this year to improve railways, airports and roads. The nation’s parliament approved in December a land-acquisition bill to help accelerate projects. The economy grew 6.5 percent last year, official data showed this month. That’s the fastest pace since 1996, data compiled by Bloomberg show, outperforming neighbors including Thailand and the Philippines (PHGDPYOY).

“Indonesia is in a sweet spot,” Ie, 43, whose Indonesia equities research was ranked among the top six by Institutional Investors magazine last year, said in an interview in Singapore. “We like infrastructure stocks, as the land-acquisition bill was passed last year.”

Photographer: Dimas Ardian

Susilo Bambang Yudhoyono, Indonesia's president, plans to boost government spending by 19 percent to 168 trillion rupiah ($18 billion) this year to improve railways, airports and roads. Close

Susilo Bambang Yudhoyono, Indonesia's president, plans to boost government spending by... Read More

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Photographer: Dimas Ardian

Susilo Bambang Yudhoyono, Indonesia's president, plans to boost government spending by 19 percent to 168 trillion rupiah ($18 billion) this year to improve railways, airports and roads.

The government expects to complete a presidential regulation to implement the law in March, Coordinating Minister for the Economy Hatta Rajasa said in Jakarta yesterday.

Debt Ratings

The Jakarta Composite Index gained 2.1 percent to 3,985.21 at the close, the biggest advance since Nov. 4. Semen Gresik shares gained 3.7 percent to 11,250 rupiah, while Gas Negara jumped 7.1 percent to 3,750 rupiah, the biggest advance since Sept. 27. Jasa Marga rose 1.1 percent to 4,700 rupiah, the highest close since Feb. 15.

The benchmark index climbed 3.2 percent in 2011, the third- most in Asia, as two interest-rate cuts in the fourth quarter boosted the outlook for economic growth. Fitch Ratings upgraded Indonesia’s sovereign-debt ratings on Dec. 15, followed by Moody’s Investors Service on Jan. 18, allowing some foreign funds whose allocations are restricted to investment-grade countries to buy Indonesian stocks.

Ie forecast in June that the nation would regain its investment-grade rating by the end of 2011 or early 2012. He also recommended buying Indonesian stocks in January 2011 even as the Jakarta index was posting Southeast Asia’s biggest losses and overseas investors sold that month the most of the nation’s shares since 2005. The index climbed 19 percent in the next six months, peaking at a record on Aug. 1.

‘Blanket Buy’

Indonesian shares have gained 4.3 percent this year, Asia’s fourth-worst performer after Sri Lanka, Malaysia and Mongolia. That compares with a 18 percent gain in the MSCI Emerging Markets Index. (MXEF) Ie forecast the Jakarta index will rise 15 percent from last year’s closing level of 3,821.99.

Morgan Stanley upgraded Indonesia to “overweight” from “equal weight” on Feb. 17, saying stocks are “oversold” and valuations attractive, according to a report on Feb. 17.

“An acceleration in infrastructure investment will help to support higher growth in a non-inflationary environment,” analysts Jonathan Garner and Pankaj Mataney wrote in the report.

The Jakarta Composite is valued at 13.5 times estimated earnings, its lowest level relative to the MSCI Asia Pacific Index since April 2010. China’s Shanghai Composite Index has risen 10 percent this year after slumping 22 percent in 2011. India’s BSE India Sensitive Index has surged 15 percent this year after dropping 25 percent last year.

Growth Forecast

“Once the rush into China and India has stabilized, Indonesia will start to stand out, and we are quite close to that,” Ie said. “We have a blanket ‘buy’ for infrastructure stocks.”

The $707-billion economy in Indonesia, the world’s fourth most-populous nation, has expanded more than 6 percent for five straight quarters, a sign it’s weathering a decline in global demand that has hurt growth across Asia.

The central bank unexpectedly cut the benchmark interest rate on Feb. 9 for the first time in three months, taking advantage of easing inflation to support growth. It expects growth of 6.3 percent to 6.7 percent this year, supported by strong domestic demand and investment, even as external trade may slow. The World Bank forecast in January that the global economy will grow 2.5 percent in 2012.

“Our economy is relatively closed and exports are not a key driver,” said Ie. “That’s one of the reasons why the global economic situation will have a limited impact on us. Commodities prices and inflation are relatively subdued and purchasing power remains relatively high. The strong fundamentals of Indonesia will prevail.”

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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