Indonesia Stocks Poised for 17% Annual Gain, Manulife Says

Indonesian stocks are poised for the steepest annual gain in three years as domestic consumption drives the fastest economic expansion in Asia after China, according to the country’s second-largest mutual fund manager.

The benchmark Jakarta Composite Index may advance as much as 17 percent this year, Alvin Pattisahusiwa, director of investment at PT Manulife Aset Manajemen Indonesia, said in an e-mail interview last week. The gauge already jumped 14 percent in the first quarter, the most since the three months to September 2010, closing at a record on March 28. Markets were shut on March 29 for a holiday.

Gains will be led by domestic-oriented stocks as low-interest loans and the introduction of a minimum wage spur household spending even as living costs rise, Pattisahusiwa said. Consumer spending accounted for almost 55 percent of the country’s nominal gross domestic product in 2012, compared with 55 percent in Thailand and 74 percent in Philippines, according to data compiled by Bloomberg.

“If we look at earnings growth this year of 14 percent to 17 percent, the index has the potential to rise that much,” said Pattisahusiwa, who helps manage $1.9 billion of assets in Jakarta. “Domestic-oriented stocks will be the biggest contributor to the index. Currently, there is a split where investors have a positive view on domestic-oriented sectors, while demand for the commodity sectors has not picked up.”

Pattisahusiwa said there may be scope for higher index targets should analysts upgrade earnings forecasts following first-quarter profit reports. Within the Jakarta Composite, 57 percent of its companies reported fourth-quarter profit that beat estimates, according to data on 54 corporate results compiled by Bloomberg.

Steepest Rally

Indonesia’s economic growth is expected to accelerate to 6.25 percent in 2013 from 6.23 percent last year, according to the median estimate of economists in a Bloomberg survey. Gross domestic product is predicted to expand even as the nation grapples with a weakening currency, rising energy imports and the fastest inflation in almost two years.

The Jakarta Composite Index lost 0.1 percent to 4,935.756 as of 1:57 p.m in Jakarta today. A 17 percent gain by the gauge this year would be the steepest annual advance since 2010’s 46 percent. The measure’s increase in the first quarter compares with a 1.9 percent decline in the MSCI Emerging Markets Index and a 5.7 percent increase by the MSCI Southeast Asia Index.

Pattisahusiwa’s firm is a unit of Manulife Financial Corp., Canada’s largest insurer. Manulife’s biggest Indonesian equity-focused mutual fund, which has about $327 million of assets, has returned 29 percent since it was started in August 2003, compared with the Jakarta Composite Index’s 26 percent gain, according to a fund fact sheet on the firm’s website.

Top Holdings

Pattisahusiwa declined to name his favored stocks. The Manulife fund’s top five holdings as of Feb. 28 were PT Astra International, PT Bank Central Asia, PT Bank Mandiri, PT Bank Rakyat Indonesia and PT Telekomunikasi Indonesia, according to the fact sheet. Financial shares accounted for 38 percent of the fund, the fact sheet showed.

The Jakarta Composite trades at 15.1 times projected 12-month earnings, the most expensive in Southeast Asia after the Philippines, according to data compiled by Bloomberg. The Indonesian gauge is valued at a 44 percent premium to the MSCI Emerging Markets Index, the data show.

The nation’s stocks will probably be volatile this year as inflation accelerates after the government raised electricity tariffs and imposed a minimum wage, Pattisahusiwa said. President Susilo Bambang Yudhoyono’s administration said on March 19 that it’s considering changes to its fuel-subsidy policy amid surging oil imports, which cost the nation $29 billion last year.

Volatility Rising

“The plan to raise subsidized fuel prices is a double-edged sword,” Pattisahusiwa said. “On one hand it is good for the health of our fiscal situation and budget, but it will affect inflation.”

A gauge of 30-day volatility on the Jakarta Composite, a measure of price swings, was at 13.7 on March 28, the highest level since October. Inflation quickened to a 22-month high in March, data today showed. The rupiah fell for a seventh quarter in the three months ended March 31, the longest losing streak since 1998.

The Jakarta Construction, Property and Real Estate Index has jumped 41 percent this year, the best-performing group in the benchmark gauge, while the Mining Index has lost 4.4 percent as global commodity prices dropped.

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