The Jakarta Composite Index is poised to extend this year’s gain by another 10 percent as the government takes steps to improve exports and infrastructure, according to the head of the nation’s stock exchange.
The benchmark gauge for Indonesia’s $410 billion equity market will probably climb 20 percent in 2014, the most since 2010, after gaining 10 percent this year through yesterday, President Director Ito Warsito said in an interview. The bourse plans to attract 30 initial public offerings in 2014, versus 31 last year, he said.
Indonesian shares have posted the biggest rally in Asia after Vietnam as net inflows by foreign investors climbed to about $907 million, the most among regional markets tracked by Bloomberg. Investor sentiment has improved amid a narrowing current-account deficit and a rally in the rupiah, after the index fell 11 percent in the second half of 2013.
“We are still optimistic about 2014, although there are some concerns on the economic side,” Warsito, 52, said yesterday at the exchange. “We believe the composite index can still grow by around 20 percent.”
Warsito forecast in an interview on June 27, 2012, that the index would rise as much as 14 percent to 4,500 by the end of that year. It ended 2012 about 10 percent higher at 4,316.69.
Manufacturing and infrastructure stocks will probably be among the best performers this year as the government offers tax incentives to build factories and allows foreign investment in ports and airports, said Warsito, a graduate of Harvard Business School. The Jakarta Construction, Property & Real Estate Index is up 27 percent this year, the best performance among 9 industry groups. Jakarta Composite Index declined 0.4 percent to 4,684.39 at the close today.
“With the market already gaining 10 percent this year, I think his estimates for 20 percent growth is achievable if the election go smoothly and economic conditions keep improving,” said Dwianto Oktory, a fund manager at PT MNC Asset Management, which oversees 2.9 trillion rupiah. Construction companies may lead this year’s advance, he said.
Profits at lenders will probably slow this year after the central bank lifted interest rates by 1.75 percentage points in 2013 to reduce the current-account gap, he said. With Bank Indonesia now expected to pause, corporate bond issuance will pick up, Warsito said. Companies are forecast to issue 50 trillion rupiah ($4.4 billion) of bonds in 2014, compared with 57.5 trillion rupiah last year, he said.
Indonesian companies recorded the best start to an earnings season in six years. About 72 percent of companies in the benchmark index that posted fourth-quarter results as of March 3 surpassed analyst estimates, data compiled by Bloomberg show.
The economy expanded 5.72 percent from a year earlier in the three months ended Dec. 31, compared with 5.63 percent in the previous quarter. The country’s current-account deficit is expected to narrow to 2.5 percent this year, from about 3.3 percent last year, according to Bank Indonesia.
The bourse introduced new listing rules in January, requiring companies to have a free float of at least 50 million shares and 7.5 percent of share capital within the next 24 months.
PT Hanjaya Mandala Sampoerna, the biggest company on the Indonesian bourse with a market capitalization of 302 trillion rupiah, will probably remain a listed company even as its free float of 1.8 percent currently falls below the new requirement, Warsito said. Philip Morris International Inc. bought a controlling stake in the Indonesian company in 2005.
“When Philip Morris acquired the company they had a commitment to keep the company listed,” said Warsito, who helped advise the Philip Morris on the deal as President Director of brokerage PT Bahana Securities. “We will let Philip Morris decide, but our expectation is for Sampoerna to remain a listed company.”