The tumble in Indonesian stocks that sent valuations to the lowest levels in 14 months is creating buying opportunities in banks and consumer shares, said PT Schroder Investment Management Indonesia’s Kiekie Boenawan.
The Jakarta Composite Index fell 4.8 percent to 4,106.69 at 10:50 a.m. local time, taking stocks into bear-market territory. The index dropped 5.6 percent yesterday, the biggest retreat in almost two years, as foreign investors sold a net $169 million of shares in the biggest outflow since June 21, according to exchange data compiled by Bloomberg. The index has wiped out this year’s gains and trades at 12.1 times estimated 12-month profit, the lowest level since June 2012.
“We see this drop as an opportunity to buy selectively those stocks that have been overpriced in the past,” Boenawan, the Jakarta-based head of investment at Schroder Investment Management Indonesia, the nation’s biggest mutual-fund manager with 37.9 trillion rupiah ($3.6 billion) under management, wrote in an e-mail yesterday.
The Indonesian unit of Schroders Plc, Europe’s largest independent money manager, had more than doubled cash holdings as the Jakarta index advanced to a record on May 20, Chief Executive Officer Michael Tjoajadi said in a July 31 interview. The gauge has lost 20 percent since then as a record current-account gap sent the rupiah to the weakest level since 2009 and spurred concern the central bank will tighten monetary policy further to combat the quickest inflation in four years.
The MSCI Asia Pacific Index slid 1.1 percent in Hong Kong, heading for its lowest close since July 9.
The rupiah slipped 0.1 percent to 10,495 per U.S. dollar today, after touching 10,500 per dollar yesterday for the first time since 2009. Rupiah one-month non-deliverable forwards continued their decline today, plunging 2.2 percent to 11,088 per dollar, the biggest drop since June 20.
The currency fall came after central bank data showed the current-account deficit widened to a record $9.8 billion in the three months through June, from $5.8 billion in the previous quarter. Worse-than-estimated economic data this month spurred declines, Boenawan said. The economy grew less than 6 percent for the first time since 2010 in the second quarter.
PT Bank Mandiri, the country’s largest lender by assets, and PT Bank Rakyat were the biggest drags on the index today.
The Jakarta Finance Index is valued at 2 times net assets, an 18 percent discount versus the broader Jakarta gauge, according to data compiled by Bloomberg. That compares with the five-year average gap of 7 percent.
Indonesia’s current-account deficit will probably narrow this quarter, Finance Minister Chatib Basri told reporters in Jakarta yesterday. The central bank also sees a smaller shortfall in the second half of the year as the weaker rupiah, slower economic growth and higher fuel prices curb imports, Deputy Governor Perry Warjiyo said in a statement yesterday.
Further declines in the rupiah may cause foreign-exchange losses for overseas investors and an unstable outlook for businesses that need to hedge currency risk, said Jemmy Paul, an equity fund manager at Sucorinvest Asset Management in Jakarta. The benchmark Jakarta index may fall to between 4,200 and 4,000 before new buyers emerge, he said.
Utilities and consumer companies that are more resilient to economic swings are a better bet, he said. PT Telekomunikasi Indonesia and PT Perusahaan Gas Negara are among his top picks.
The Jakarta index’s decline this quarter, the biggest among 45 emerging and developed markets tracked by Bloomberg, followed an almost five-fold rally between October 2008 and May. The Indonesian economy has expanded at an average pace of 5.9 percent during the past five years, versus 0.9 percent for the U.S. economy.
“A slowdown is quite normal and healthy,” said Boenawan. “It allows the economy to adjust and not get overheated.”