PT Mandiri Manajemen Investasi has tripled cash holdings over the past two months and will start buying consumer stocks once the rupiah stabilizes and inflation peaks, Chief Investment Officer Priyo Santoso said.
The asset-management unit of Indonesia’s largest bank currently has 10 percent to 15 percent of its 22 trillion rupiah ($2.1 billion) of holdings in cash, Santoso said in a July 26 interview in Jakarta. The fund will add shares including PT Unilever Indonesia (UNVR), PT Kalbe Farma and PT Indofood CBP Sukses Makmur (INDF) when the gap between the rupiah spot rate and one-month non-deliverable forwards narrows to 0.5 percent to 0.6 percent, from 2 percent now, he said.
Global funds have pulled $4.6 billion from Indonesian stocks and local-currency bonds since the Federal Reserve said May 22 that it could reduce stimulus that has fueled fund flows to emerging markets. The rupiah fell by the most since September 2011 last week as the central bank allowed a more rapid slide toward levels quoted in the offshore market. Santoso said he expects inflation to peak in July or August after the government raised subsidized fuel prices in June.
“A narrowing gap between the NDF and the onshore spot is an indication that pressure on the rupiah has eased, which will be a signal for foreign investors to start returning,” Santoso said. “Once inflation peaks, we see that as our entry point.”
Consumer-price gains should average 7.8 percent to 8.2 percent in 2013, Santoso said. Inflation will be 8.08 percent this month, compared with 5.9 percent in June, according to the median estimate of analysts surveyed by Bloomberg before data due Aug. 1. Consumer prices rose 4.3 percent in 2012.
The Jakarta Composite (JCI) index has lost 11 percent since May 22, while the yield on the government’s 10-year bonds increased 2.26 percentage points to 7.96 percent.
The rupiah was steady at 10,268 per dollar as of 9:57 a.m. in Jakarta after falling 1.8 percent last week, according to prices from local banks. The currency weakened beyond 10,000 per dollar for the first time since 2009 in July and has lost 8 percent in 12 months. One-month non-deliverable forwards declined 0.1 percent 10,475, data compiled by Bloomberg show. The spot rate was as much as 5.1 percent weaker than the forwards on June 20.
The country’s current-account deficit, estimated by the central bank to be 3.5 percent of gross domestic product last quarter, suggests the rupiah should trade at about 10,300 to 10,500 per dollar, Santoso said.
The Jakarta Consumer Goods index traded at 25.5 times projected earnings, compared with 13.6 times for the Jakarta Composite index gauge. Mandiri is positive on consumer stocks, as well as retail and construction companies, Santoso said.
“These are the sectors with a high survivability rate during times of uncertainty like what we are facing now,” he said. Many of these shares are expensive, Santoso said, adding that Mandiri would look to day-to-day moves in prices to create buying opportunities.
The lender is underweight or has zero positions on coal and some mining stocks, while the outlook for plantation shares remains challenging, Santoso said. The fund prefers holding short-tenor sovereign debt because of the quickening inflation, he said.
“Foreign investors have started to do bottom-fishing, while the market is under pressure, which is a good sign,” he said. “Foreign sentiment is a significant factor in Indonesia, as local investors tend to wait for them to make the first move.”