• Danareksa sees JCI rising 14% to reach 5,400 this year
  • Fund betting on consumer companies, telcos and cement

Indonesian equities will extend Asia’s biggest rally this year as government spending and falling interest rates help corporate earnings and private consumption, one of the country’s best performing stock fund managers said.

PT Danareksa Investment Management sees the Jakarta Composite Index rising to 5,400, a near 14 percent jump from Tuesday’s close, Investment Director Marsangap Tamba said in an interview. Tamba said consumer-related companies will be his key stock picks along with telecommunications, cement producers, property and big banks.

“In 2016, it has become clearer that global investors start to see Indonesia as a different emerging market,” said Tamba, whose Danareksa Mawar Konsumer 10 mutual fund beat all Indonesian peers with more than 1 trillion rupiah of assets on a six-month return basis. “Indonesia has the least correlation with commodity prices and the China story compared with other emerging markets.”

Indonesia exports commodities including coal, metals and palm oil that have seen falling prices and weaker Chinese demand, yet more than half the economy is driven by domestic consumption. The Jakarta index has risen 3.7 percent this year, with foreign investors buying a net $138 million, making it the only market among 9 Asian countries tracked by Bloomberg with net year-to-date inflows.

Better-than-expected economic growth in the fourth quarter and accelerated infrastructure spending has helped lift sentiment, Tamba said. President Joko Widodo has kick started projects including railways, toll roads and ports, and plans to cut taxes to spur growth. The Jakarta Consumer Goods Index has gained 10 percent this year, the most among 9 industry groups in the benchmark gauge. Tamba declined to name individual stocks.

Performance of industry groups in Jakarta Composite Index
Performance of industry groups in Jakarta Composite Index

He expects Bank Indonesia to lower its benchmark interest rate by an additional 50 basis points to 6.75 percent in 2016, providing a boost to banks and consumer discretionary stocks. The central bank next announces its policy on Thursday and is expected to cut the rate by 25 basis points, according to a majority of economists in a Bloomberg survey.

Tamba says his clients didn’t return to capital markets last month as aggressively as in previous years. “We expect them to return in a bigger way once we see this optimism translated into earnings,” he said.

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