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Indonesian Stocks Fall Most in Asia as Foreign Investors Sell

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June 10 (Bloomberg) -- 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 1.8 percent to 4,777.37, its lowest close since March 22. The gauge, which slumped today by the most among Asian benchmark gauges tracked by Bloomberg, has dropped 8.4 percent from its record of 5,214.98 on May 20. The MSCI Indonesia Index lost 1.8 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.

Bank Indonesia is expected to say on June 13 that it will keep its benchmark interest rate unchanged at a record low 5.75 percent, according to all 19 analysts surveyed by Bloomberg.

PT Bank Mandiri, the country’s largest lender by assets retreated 3.7 percent, while property developer PT Bumi Serpong Damai dropped 4.1 percent.

PT Telekomunikasi Indonesia, the country’s largest telecommunication company, fell 4.6 percent. It was the biggest drag on the Jakarta Composite index, followed by PT Unilever Indonesia, which dropped 4.2 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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