Indonesia Fund Jamsostek Sees Opportunity in Stock Slump

PT Jamsostek, Indonesia’s biggest pension fund, said the nation’s benchmark stock index will extend losses, giving the manager an opportunity to boost equity holdings amid optimism about the country’s economic growth.

There will be short-term volatility and further declines in the Jakarta Composite Index, which lost as much as 12 percent after reaching a record on May 20, before the market resumes its climb, Jamsostek President Director Elvyn Masassya said in a June 17 interview. The gauge will reach about 5,000 at the end of 2013, Masassya said, compared with 4,840.45 yesterday. The index gave up its earlier gains and ended 0.7 percent lower today, snapping three-day rose.

Foreign investors sold a net $2 billion of Indonesian equities since last month’s peak, wiping out almost $40 billion of the stock market’s value. Jamsostek, which manages 144.2 trillion rupiah ($14.6 billion), has been buying shares over the past three weeks and increased the proportion of funds invested in equities to 19 percent from 18 percent at the end of May, according to Masassya.

“The turbulence will still be there because some stocks are not cheap enough,” Masassya said. The Jakarta index “will stabilize” when it trades at 12 times to 13 times estimated earnings, he said. The gauge is valued at 14.2 times profit.

Jamsostek’s investments in equities returned 33.5 percent in the first five months of 2013, outpacing the 17 percent gain in the benchmark index, said Masassya, who turned 46 yesterday.

Fed Stimulus

“Selling pressure from foreign funds has decreased while domestic investors are starting to enter the market again, so the worst should be over,” said Agus Yanuar, chief investment officer at PT Samuel Asset Management, who sees the Jakarta gauge rising to 5,200 at the end of the year. “We might see the index moving sideways for the near future, June and July, but there is a very small probability for a deep correction.”

The Jakarta index’s declines have come amid a 9 percent slump by the MSCI Emerging Markets Index since May 22, when Federal Reserve Chairman Ben S. Bernanke said the central bank could consider paring stimulus. Fed officials weighing the pace of monetary stimulus are due to announce the results of a two-day policy meeting later today. All 38 analysts in a Bloomberg survey expect the central bank to keep its benchmark interest rate unchanged at 0.25 percent.

Jamsostek plans to boost its investment allocation for stocks to between 20 percent and 25 percent over the next five years from 18 percent to 22 percent currently, Masassya said. Investments would focus on stocks that will benefit from infrastructure projects, he said, declining to identify specific companies.

Infrastructure Investments

The fund will also boost direct investments into government-backed infrastructure projects, Masassya said. This will double the fund’s allotment for direct investments to 10 percent, he said.

“We expect that we can increase our allocation in direct investment, especially for infrastructure,” he said. “The demand for infrastructure funds is still huge in Indonesia, such as for power plants, toll road, seaports and airports.”

Indonesia plans to boost spending to support growth. Southeast Asia’s largest economy is forecast to expand 6.3 percent this year, according to the government. That rate is almost three times the 2.2 percent pace estimated for the global economy by analysts surveyed by Bloomberg.

The Jakarta Construction, Property and Real Estate Index has gained 57 percent this year, the most among nine industry group in the benchmark gauge, which has gained 13 percent.

New Members

Jamsostek expects to more than triple assets under management to 473 trillion rupiah in the coming five years as more workers start contributing to the fund, Masassya said. This means assets will increase by 25 percent to 27 percent each year, he said.

The fund has 11.7 million members, a number Masassya expects will increase to 37 million in five years. To help reach that target, Jamsostek has increased the number of customer service outlets across the country to 627, of which 127 are full branches.

Masassya, who composes music, plays the guitar and has recorded several albums, was Jamsostek’s investment director until he was promoted to head the fund in August last year.

Among Southeast Asian markets, the valuation of Jakarta’s benchmark index is lower than the Philippine Stock Exchange Index, which trades at 18 times estimated earnings, and Kuala Lumpur’s FTSE Bursa Malaysia KLCI Index, with a price-earnings ratio of 16. The Jakarta gauge may climb to 5,518.85 over 12 months, according to price targets for index members compiled by Bloomberg. That’s 14 percent above yesterday’s close.

PT Citigroup Securities Indonesia said in a report yesterday that recent market weakness is a “buying opportunity” and that it prefers domestic-oriented sectors such as media, toll road operators, cement and property.

“If you take a look the regional market, Indonesia still has a huge opportunity for potential gain this year,” Masassya said. “There is room to build your equities holdings, and the time is now.”

Before it's here, it's on the Bloomberg Terminal.