Indonesian Stocks Fall to 11-Week Low as Foreign Investors Sell

Indonesian stocks declined, dragging the benchmark index to an 11-week low, after foreign investors sold the most equities in almost two years.

The Jakarta Composite Index fell 1.6 percent to 4,789.07 at the midday trading break, heading for its lowest close since March 22. The gauge has dropped 8.2 percent from its record high of 5,214.98 on May 20. The MSCI Indonesia Index retreated 1.2 percent, taking its slump since May 20 to 12 percent.

Foreign institutional investors sold a net $183.6 million of Indonesian equities on June 7, the most since Aug. 19, 2011, according to data compiled by Bloomberg. Investor concern over a government fuel-price increase is rising after the approval of a compensation plan by a parliament commission on June 7, according to Harry Su, head of research at PT Bahana Securities.

“Investors are starting to price in some economic slowdown” because of higher fuel costs, Su said today by phone. “Some short-term correction is definitely warranted. Our rise to the 5,200 level was with disregard to fundamentals.”

The Jakarta Composite Index’s valuation climbed on May 20 to 15.9 times 12-month projected earnings, the highest level in at least five years, data compiled by Bloomberg show. The gauge now trades for 14.3 times profit.

Eleven straight days of selling by overseas investors through June 7 have pared net purchases this year to $1.46 billion, the data show. Foreign buying has helped drive the Jakarta Composite Index up by 11 percent this year amid optimism economic growth will boost corporate profits.

Compensation Plan

An Indonesian parliament commission that oversees social welfare affairs approved the government’s proposed fuel compensation budget, the office of the State Secretary said in a statement on its website on June 7. President Susilo Bambang Yudhoyono said on April 30 the nation will raise subsidized fuel price only after the Indonesian budget is revised to account for compensation programs for the poor.

The fuel-price increase could result in higher inflation and prompt the central bank to raise interest rates, Bahana’s Su said. He expects “interest-rate sensitive” stocks such as banks and property developers to be hurt the most.

PT Unilever Indonesia, a unit of the world’s second-largest consumer goods company, fell 4.3 percent. It was the biggest drag on the Jakarta Composite index, followed by PT Bank Mandiri, which retreated 3.2 percent. Property developer PT Bumi Serpong Damai dropped 5.2 percent.

To contact the reporter on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

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

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