- Samuel Aset favoring companies exposed to lower-income people
- Fund manager sees 12% to 15% advance in JCI over whole of 2016
Buying consumer stocks and avoiding banks has proved a winning formula for the manager of Indonesia’s top-performing share fund. To maintain returns, PT Samuel Aset Manajemen is focusing on companies that are benefiting from a rise in spending by lower-income people.
PT Indofood CBP Sukses Makmur, an instant noodle-maker, PT Gudang Garam, a tobacco company, and PT Telekomunikasi Indonesia are among Samuel’s top picks, President Director Agus Yanuar said in an interview in his office in Jakarta. They are benefiting from an increase in consumer spending driven by rising raw-material prices and policies to help poorer people, he said.
“The rebound in commodity prices has helped lower-income consumers,” said Yanuar. “That, combined with the decision to lift the threshold for non-taxable income and the various government assistance for education and health care, has boosted spending.”
Indonesia’s key raw-material exports including coal, tin and palm oil have rallied this year, providing more work in commodity-dependent areas like Sumatra and Kalimantan and having a flow-on effect to local businesses. A sevenfold jump in the amount earmarked for social security programs in this year’s budget and a 50 percent increase in the level of income Indonesians don’t have to pay tax on is also putting more money in wallets.
Samuel Aset’s SAM Indonesian Equity Fund has returned 14 percent so far this year, beating all peers with assets of more than 1 trillion rupiah ($75 million) and almost tripling the Jakarta Composite Index’s 5.3 percent advance, according to data compiled by Bloomberg.
Southeast Asia’s largest economy grew at the slowest pace since 2009 last year and President Joko Widodo is attempting to spur growth via infrastructure spending, pressuring banks to lower lending rates and a planned tax amnesty, which the central bank estimates could lure about 560 trillion rupiah of undeclared income from overseas.
Samuel went underweight Indonesian banks after the Financial Services Authority said in February that it would cap deposit rates and force lenders to make similar reductions to their loan rates, said Yanuar, who helps manage the SAM Indonesian fund. The Jakarta Finance Index is the worst performer among nine industry measures on the JCI this year, declining 3.1 percent.
The Jakarta Consumer Goods Index has risen 12 percent in 2016. Gudang Garam, which is up 15 percent, closed unchanged on Friday after gaining as much as 3 percent earlier. Indofood climbed 1.8 percent to a record, extending its advance in 2016 to 26 percent. Telkom added 0.3 percent and has climbed 25 percent this year. Banking stocks fell on Friday even after the central bank cut its policy rate late Thursday and the JCI increased 0.4 percent.
Yanuar said he favors Gudang Garam over PT Hanjaya Mandala Sampoerna as its brands are more popular with lower-income people and its shares are cheaper. Gudang Garam trades at 16.3 times of its 12-month projected earnings, compared with 35 times for its bigger competitor.
Seventy-six percent of Indonesian men aged 15 and over smoke, the highest proportion in the world, according to World Health Organization figures, and Sampoerna is the country’s biggest company by market value.
Samuel is overweight construction companies and real-estate developers on expectations they will benefit from public spending. The biggest risk to investors in Indonesian stocks this year is if the government fails to meet its budget revenue target, which will hamper its infrastructure plans, said Yanuar.
“Overall, we think listed Indonesian companies can book earnings growth of 12 to 15 percent this year, which should translate to a similar increase in the stock index,” said Yanuar. This could be even higher if the amnesty gets implemented, he said.