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Indonesia, Philippine Indexes Drop at Least 10% From Records

Stocks in Indonesia and the Philippines slid, dragging their benchmark indexes more than 10 percent below record highs, on concern inflation will lead to increased borrowing costs and pare corporate earnings.

The Jakarta Composite index fell 2.2 percent to 3,379.54 at the 4 p.m. local-time close, extending its tumble to 11 percent from the Dec. 9 peak. The Philippine Stock Exchange Index fell 1.4 percent to 3,951.04 at the noon close in Manila, a decline of 10 percent from its all-time high on Nov. 4.

China and India are among developing markets that have slid more than 10 percent from their peaks, declines that signify so-called corrections to some analysts and investors. The MSCI Emerging Markets Index has sunk 2.5 percent from the Jan. 4 high as central banks from Russia to Brazil seek to stem price gains.

“Inflation is the biggest threat and concern in the market now,” said Julian Tarrobago, who helps oversee $200 million in assets at ATR KimEng Asset Management Inc. in Manila. “The market is well aware that inflation will come after rapid growth and it has now reached a point that it has become an issue.”

iShares MSCI Indonesia Investable Market Index Fund, an exchange-traded fund run by the world’s largest money manager BlackRock Inc., yesterday fell 5.2 percent to 25.35 in U.S. trading, the lowest since Aug. 31. A record 4.3 million of the shares changed hands, almost twice the previous record of 2.2 million shares in September.

ETFs issue a fixed number of shares and trade throughout the day like stocks. Most are designed to passively track a benchmark equity index.

‘Cashing Out’

“Funds are flowing out on redemptions among overseas ETFs as they’re cashing out,” said Agus Yanuar, chief investment officer at PT Samuel Aset Manajemen, which manages about $154 million in Jakarta. “They’re selling shares across the board.”

Foreign investors have sold a net $312 million of Indonesian stocks this year, after a net $2 billion of foreign fund inflows in 2010, according to data compiled by Bloomberg. Overseas investors sold a net $73.4 million worth of Philippine shares from Jan. 3 to Jan. 20, after they bought a net $1.23 billion shares last year, according to stock exchange data.

Indonesian equities surged 46 percent in 2010, the most among the world’s 25 biggest markets. January’s retreat has left shares on the index valued at 13.5 times estimated earnings, the lowest level since May and down from 18.3 times at the December peak. The Philippine index last year jumped 38 percent. Its multiple has slid to 13 times estimated earnings, the lowest since July and down from 16 times at the November peak.

‘Asset Bubbles’

Indonesia’s stocks fell today amid concern about inflation and “asset bubbles in several countries,” Bank Indonesia Governor Darmin Nasution said in Jakarta, without elaborating. Investors used this opportunity to “take profit,” he said.

Indonesia’s gross domestic product may have expanded 6 percent last year compared with 4.5 percent in 2009, Bank Indonesia said Jan. 5. Philippine growth “most probably” exceeded the 5 percent to 6 percent target in 2010, Economic Planning Secretary Cayetano Paderanga said Jan. 14.

Nasution said Jan. 14 the central bank may raise its benchmark interest rate from a record low of 6.5 percent as core inflation, which excludes food and energy prices, accelerates. The country ordered banks to set aside more cash as reserves to reduce inflationary pressure in 2010, while refraining from joining Malaysia, Thailand and India in boosting borrowing costs.

Policy Rate

Bank Indonesia left its policy rate unchanged for a 17th consecutive meeting on Jan. 5 even as consumer prices rose 6.96 percent in December from a year earlier, the fastest pace in 20 months.

The Philippines’ central bank Governor Amando Tetangco said Jan. 18 rising food and oil costs may boost domestic inflation risks. The bank has kept its benchmark interest rate at a record-low 4 percent since July 2009, helping the economy recover from the global financial crisis. Inflation in 2011 and 2012 will remain within the target of 3 percent to 5 percent, central bank Deputy Governor Diwa Guinigundo said on Dec. 29. Price increases averaged 3.8 percent in 2010, Tetangco said on Jan. 5.

PT Bank Central Asia, Indonesia’s biggest bank by market value, declined 4.4 percent to 5,450 rupiah, the lowest since June 14. PT Bank Mandiri, the largest bank by assets, dropped 3.5 percent to 5,600 rupiah. A gauge of financial stocks fell 1.9 percent, the biggest drag on the composite index.

Ayala Corp., owner of the largest Philippine developer and third-biggest bank, sank 5 percent to 363.80 pesos, the sharpest loss since February. SM Investments Corp., owner of the nation’s biggest shopping mall operator and largest bank, declined 3 percent to 480 pesos, the lowest level since Sept. 1.

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