Rupiah Drop Spurs Mandiri Shift to Palm Producers

The Indonesian rupiah’s decline to a four-month low is encouraging the nation’s biggest domestic mutual-fund manager to shift money into palm-oil exporters at the expense of construction companies.

The currency has retreated 6.1 percent against the dollar this quarter, the most among 24 emerging-market currencies tracked by Bloomberg, and traded at the weakest level since February today. The last two times the rupiah depreciated at least this much in a quarter, the Jakarta Agricultural Index jumped an average 20 percent during the following three months.

PT Mandiri Manajemen Investasi is anticipating another rally this time as the combination of a weaker currency and rising palm oil prices improves the outlook for export earnings, according to Priyo Santoso, the Jakarta-based money manager’s chief investment officer. Builders are turning expensive after posting the biggest gain among nine industry groups in the benchmark Jakarta Composite Index this year, he said.

“Commodity prices have bottomed already and construction stocks have gained significantly, so it is part of the rotation,”Santoso, who oversees the equivalent of $1.8 billion, said in an interview. “The commodity sector has been treated as a hedge for the strengthening of the dollar.”

The rupiah fell to 12,099 per dollar today amid concern the nation’s current-account deficit will widen after April showed the largest trade shortfall in nine months. It was at 11,360 per dollar at the end of March.

Overseas Sales

The retreat helped send the Jakarta Agricultural index to a fourth day of gains today, climbing 0.7 percent to the highest level in almost six weeks. A gauge of construction companies rose 0.3 percent.

PT Sinar Mas Agro Resources & Technology (SMAR), a unit of Indonesia’s biggest palm oil producer, earned 57 percent of its revenue from dollar-denominated exports in 2013. PT Astra Agro Lestari’s (AALI) average selling price in the first quarter for the world’s most-consumed edible oil climbed to 8,949 rupiah (74 U.S. cents) per kilo, from 6,464 rupiah a year earlier.

The Jakarta Agricultural Index jumped 17 percent in the first quarter of 2009 and gained 22 percent in the fourth quarter of 2013 after the rupiah tumbled during the previous three months. The Jakarta Construction, Property & Real Estate Index fell both times.

For Arief Wana, a director at PT Ashmore Asset Management Indonesia, which oversees an equivalent of about $390 million in Indonesian assets, it’s too early to switch out of construction stocks because the next government will boost spending on infrastructure.

Presidential Election

Both of the nation’s leading contenders for president in the July 9 election, Jakarta Governor Joko Widodo and former general Prabowo Subianto, have pledged to improve infrastructure in Southeast Asia’s biggest economy. Widodo said he wants to build 2,000 kilometers (1,244 miles) of new roads, 10 seaports and 10 industrial zones. Prabowo pledged to spend 1,400 trillion rupiah in five years to build 3,000 kilometers of roads and 4,000 kilometers of railways, along with airports, seaports, power and telecommunication networks.

“These are the sectors that will enjoy multi-year growth,” Wana said by phone on June 24. “The next government will have to beef up infrastructure spending. It is too risky to shift your holdings based on the rupiah.”

The outlook for rising commodity prices makes agricultural exporters a better bet, Santoso said. Palm oil futures, which fell 18 percent from March 10 through June 11, have since rebounded more than 4 percent. Futures climbed to a four-week high in Kuala Lumpur yesterday on concern a prolonged period of dryness caused by the El Nino weather pattern may curb production.

“When El Nino comes into the equation, it would strengthen the argument to go for plantation stocks,” Santoso said.

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

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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