Foreign Funds Erase Inflow Into Indonesia Stocks This Year

Foreign fund flows into Indonesian equities turned negative for the first time this year after investors pulled money from the stock market for a 22nd day.

Foreigners sold a net $68 million worth of Indonesian stocks yesterday, according to data compiled by Bloomberg, taking total outflows this year to $20 million. The Jakarta Composite Index fell for a fifth day, dropping 0.2 percent to 4,418.872, its lowest close since Jan. 28.

The Jakarta gauge has slumped 15 percent since reaching a record on May 20. The nation’s stocks have mirrored declines in other emerging markets after Federal Reserve Chairman Ben S. Bernanke said on May 22 the U.S. central bank could consider paring stimulus. The MSCI Emerging Markets Index has plunged 15 percent since Bernanke’s statement.

“It is a clear sign that foreign investors are underweighting Southeast Asian stocks, including Indonesia,” John Teja, a director at Ciptadana Securities in Jakarta, said by phone. “The outflow will continue and the index will remain under pressure. I think an index level of 4,200 would be a good point to re-enter the market,” he added, referring to the Jakarta index.

PT Astra International, the largest company in the index by market capitalization, fell 2.4 percent, the biggest drag on the benchmark gauge. PT Telekomunikasi Indonesia, the country’s largest telecom company, slipped 2.5 percent, while PT Bank Central Asia sank 1.7 percent.

Valuation Drop

The Jakarta index trades at 12.9 times projected 12-month earnings, the cheapest since Aug. 30, data compiled by Bloomberg show. That compares with a peak of 15.9 times on May 20. The MSCI Emerging Markets Index trades at 9.2 times, a one-year low.

PT Jamsostek, the country’s biggest pension fund, expects the benchmark index to extend losses before stabilizing at 12 times to 13 times forecast earnings, its President Director Elvyn Masassya said in an interview on June 17.

PT Nomura Indonesia is recommending investors add positions in Indonesian stocks as structural reforms gain momentum and earnings growth will remain strong, Wilianto Ie, head of research, wrote in a report today.

“We are turning bullish again on Indonesia equity.” Ie wrote. “The correction in the JCI is near the tail-end as foreign investors have sold nearly a quarter of their positions bought since 2010, based on our calculations.”

Ie said currency risk remains investors’ top concern given the strong dollar and high historical volatility in the rupiah. The currency has weakened 3.1 percent this year, and traded at 9,943 per dollar at 11:41 a.m. local time, prices from local banks compiled by Bloomberg show. The currency reached 9,958 on June 18, the weakest level since September 2009.