Indonesian Stocks Advance to Record Amid Bank Earnings Optimism

Indonesian stocks gained for a third day to a record as optimism over earnings growth at some banks overshadowed concerns about accelerating inflation.

PT Bank Rakyat Indonesia, the country’s third largest lender by asset, provided the biggest boost to the Jakarta Composite Index. PT Indofood CBP Sukses Makmur, which makes food products, climbed the most in a week after reporting higher first-quarter profit. PT Unilever Indonesia was the biggest drag on the benchmark index after a 14 percent surge yesterday.

The Jakarta Composite closed 0.5 percent higher at 5,060.92 even as inflation concerns drove the yield premium investors demand to hold Indonesia’s 10-year government bonds over two-year notes to a four-week high. Data today showed the nation’s consumer price index slowed in April to 5.57 percent year-on-year from 5.9 percent the previous month. April’s reading was lower than the median 5.67 percent forecast in a Bloomberg survey of economists.

“Since the inflation number was good, some investors took a position on banking stocks which offer good outlooks and lower valuations relative to other lenders,” Andy Ferdinand, analyst at Batavia Prosperindo Sekuritas said by phone today in Jakarta.

Bank Rakyat Indonesia, the nation’s second-largest lender by assets, rose 2.7 percent to 9,650 rupiah. Bank Rakyat generated first-quarter net income of 5 trillion rupiah ($514 million), more than PT Bank Mandiri’s 4.3 trillion-rupiah profit. Mandiri rose 0.5 percent to 10,550 rupiah today.

Rising Valuations

While the Jakarta Composite rose for a fifth straight month in April, the 1.9 percent gain was the smallest since December, as valuations rose and speculation grew the government will raise the price of subsidized fuel, boosting inflation.

The index, which has gained 17 percent this year, trades for 15.4 times 12-month projected earnings, the highest level since Nov. 10, 2010, data compiled by Bloomberg show. The Indonesian gauge has doubled since the end of 2009 amid the prospect of accelerating earnings growth in an economy that has expanded faster than 6 percent annually the past three years.

Indofood CBP rose 3.5 percent, the most since April 25, to a record 11,850 rupiah. First-quarter net income increased to 643.8 billion rupiah from 591.1 billion rupiah a year earlier, the company said in a statement published in the Bisnis Indonesia newspaper today.

Unilever Indonesia, a unit of the world’s second-largest consumer-products company, lost 2.1 percent, its biggest drop since April 1 to 25,700 rupiah. An offer yesterday by Unilever Plc to raise its stake in India’s Hindustan Unilever Ltd. also boosted shares of the Indonesian unit by 14 percent, sending the stock’s 14-day relative strength index to 79.9. That’s above the reading of 70 some investors use as a signal to sell.

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