Samsung Asset Management Ltd.’s Alan Richardson has a new take on how to profit from Indonesia’s resurgent economy: buy the TV stocks that will benefit from increased ad spending by high-flying consumer companies, rather than those shares themselves.
With consumer stocks in Southeast Asia’s most populous nation trading at the highest valuation in over a decade compared with emerging-market peers, media stocks offer an attractive alternative, according to Richardson, a Hong Kong-based money manager at Samsung Asset. The South Korean investment firm that oversees $112 billion of assets globally started accumulating shares in PT Media Nusantara Citra and PT Surya Citra Media last month.
“Media companies are the way to go rather than buying consumer stocks that have already rallied significantly," said Richardson, who correctly predicted further declines in Indonesia shares in August before they bottomed the following month. “Because economic conditions are stabilizing in Indonesia and inflation is coming down and the rupiah is starting to stabilize, consumer companies are increasing their advertising budgets.”
Investor confidence is returning to Indonesia after a tumultuous 2015, with the benchmark Jakarta Composite Index climbing 18 percent from its September 2015 low. Indonesian consumer stocks including PT Indofood Sukses Makmur, a maker of instant noodles and baby food, and PT Charoen Pokphand Indonesia, a distributor of animal feeds, have led gains in Southeast Asia.
While Indonesia’s consumer stocks are directly benefiting from the country’s economic recovery, Richardson said it might be too late to jump into the sector now. The MSCI Indonesia Consumer Staple Index trades at 38 times reported earnings, near the most expensive relative to their emerging-market peers since 2001, after gaining 24 percent this year.
Shares of Media Nusantara Citra and Surya Citra could rally as much as 40 percent in the next 12 months as earnings improve, said Richardson, whose Southeast Asian equity fund has beaten 97 percent of its peers over the past five years with an 11 percent return. The shares trade at 26 and 28 times reported earnings, respectively. Net profits will rise at least 13 percent this year and 16 percent in 2017, according to analyst estimates compiled by Bloomberg.
“They’re the most obvious proxies to Indonesia’s improving economy and growing consumer spending,” said Richardson. “They’re starting a new earnings up cycle.”
Foreign investors have poured net inflows of $265 million into Indonesian equities this year, making the nation’s stock market Asia’s best performer. The economy, Southeast Asia’s largest, expanded at a faster-than-expected 5 percent in the three months to December, picking up from its slowest pace in almost six years in the second quarter.
“With currencies stabilizing, I can focus more on stock selection,” said Richardson. “I don’t need to worry about macro economic issues affecting stock valuations.”