Surging Indonesia Stock Values Prompt Danareksa to Play Defense

  • Jakarta Composite near its most expensive level since 2010
  • Market will be very prone to profit-taking: Marsangap Tamba

With Indonesian stocks at their most expensive in almost six years, PT Danareksa Investment Management is switching to a defensive stance as it waits to see if last quarter’s pickup in economic growth can be sustained.

The state-owned fund manager is favoring large-cap consumer and tobacco companies and is increasing its cash holdings, Jakarta-based Investment Director Marsangap Tamba said in a phone interview on Monday. The Jakarta Composite Index, which has risen 16 percent this year, is likely to be volatile until companies post third-quarter results next month and the government releases gross domestic product figures in early November, he said.

“The market will be very prone to profit-taking until the earnings and GDP data come out,” said Tamba, who manages the Danareksa Mawar Ekuitas Plus fund that’s returned 27 percent in the past 12 months and beaten 75 percent of its peers. “We’re moving to a more defensive strategy.”

Indonesian stocks have risen this year along with emerging-market assets as expectations for the Federal Reserve to raise interest rates have been pushed back and developed nations pledged to step up stimulus after Britain voted to leave the European Union in late June. Valuations are starting to look stretched and it’s time for investors to take profits, Sean Gardiner, a managing director at Morgan Stanley in Singapore, wrote in a Sept. 2 research note.

The Jakarta Composite Index fell 0.2 percent to 5,348.28 at the midday break after being up as much as 0.3 percent earlier. Its price-to-earnings ratio rose to 18 times on Aug. 8, the highest since December 2010. It was 17.6 on Tuesday. The benchmark gauge has lost 2.1 percent since closing at a 16-month high of 5,461.45 on Aug. 18.

Southeast Asia’s largest economy expanded 5.18 percent in the second quarter from a year earlier, compared with 4.91 percent in the first three months, as the government increased infrastructure spending. The tax amnesty has been disappointing so far and the pruning of this year’s budget suggests a potential shortfall in collections, Morgan Stanley’s Gardiner wrote in the note.

PT Indofood Sukses Makmur, a noodle maker, PT Unilever Indonesia and tobacco companies PT Gudang Garam and PT Hanjaya Mandala Sampoerna are some of Tamba’s top stock picks. He said he also liked construction firms and that he expects the JCI to regain momentum and advance 12 percent to 6,000 over the next 12 months.

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