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Indonesia’s Stocks Decline the Most in a Year on Valuations

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June 7 (Bloomberg) -- Indonesian stocks fell, with the benchmark index declining the most in a year, on speculation this year’s rally has been excessive.

The Jakarta Composite index slid 2.7 percent to 4,865.32 at the close, the steepest drop since June 4, 2012 and paring this year’s gain to 13 percent. The gauge lost 4 percent this week, the most since the five days ended Sept. 23, 2011. The measure hit a record high of 5,214.98 on May 20, driving its price-earnings ratio to 20 times, the highest since December 2010. The MSCI Indonesia Index dropped 3.6 percent today, taking its declines from a May 20 peak to 11 percent, exceeding the 10 percent loss that is considered a correction by some investors.

“Indonesia has run up sharply, so there’s profit-taking,” Abdul Jalil Abdul Rasheed, an investment director at Invesco Asset Management Ltd., said in Singapore by phone. “It’s always short-term capital that pushes market valuations upwards. When that is taken out, it causes panic. Panic is good sometimes.”

Foreign institutional investors sold a net $171.2 million of Indonesian equities on June 3, the most since Aug. 19, 2011, according to data compiled by Bloomberg. They were net sellers in the 10 days through June 5 amid speculation China’s economic growth will slow and the U.S. Federal Reserve may scale back stimulus spending.

PT Semen Indonesia, the nation’s largest cement maker, dropped 7.7 percent, the most since June 4, 2012. PT Unilever Indonesia, a unit of the world’s second-biggest consumer goods company, lost 6.8 percent, the most since Dec. 13, 2012.

The shares fell as investors viewed recent gains as excessive, Kalvin Lie, an analyst at Panin Sekuritas in Jakarta, said. Unilever rose 19 percent last month.

To contact the reporters on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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