Trump May Give Already Hot Indonesian Miners an Extra Boost

  • Jakarta mining stocks gauge has surged 22 percent this quarter
  • Stronger dollar to improve company bottom lines: Sucorinvest

Trump Effect on Commodities: Copper Up, Oil Down

Already riding a rebound in coal and nickel prices that’s made them some of the hottest stocks in Asia, Indonesian miners may get an extra tailwind from Donald Trump.

A gauge of Indonesian miners has risen 21 percent this quarter, compared with a 4.6 percent decline in the Jakarta Composite Index, as output curbs in China pushed up coal prices and nickel was supported by an environmental crackdown in the Philippines, the world’s top supplier. Mining and agriculture were the only two of nine industry gauges on the JCI to climb on Friday as the measure plunged 4 percent in its biggest drop in three years.

Emerging-market stocks and currencies are taking a beating on speculation the Federal Reserve will have to raise interest rates faster than anticipated to contain inflation if President-elect Trump follows through on pledges to ramp up spending. That’s spurring outflows from developing nations and supporting the greenback, a boon for Indonesian miners that sell commodities priced in dollars. Goldman Sachs Group Inc. sees nickel among metals that will benefit from more infrastructure building in the U.S.

“The Trump victory will improve the outlook for commodity producers and higher geopolitical risks globally could potentially push energy and commodity prices higher,” said Jemmy Paul, investment director at PT Sucorinvest Asset Management in Jakarta. “The current strengthening of the U.S. dollar will improve the bottom lines of the mining and commodity companies.”

Coal miner PT Adaro Energy and PT United Tractors, a mining service provider, surged 33 percent and 23 percent, respectively, since the end of September, with Adaro the third best performers on the MSCI Asia Pacific Index. PT Indo Tambangraya Megah and PT Tambang Batubara Bukit Asam, also coal producers, have jumped 63 percent and 33 percent, while PT Vale Indonesia, a nickel miner, rose 12 percent. Producers of the two commodities dominate the Jakarta mining gauge.

The JCI fell 2.2 percent in Jakarta on Monday, suffering its biggest two-day drop since August 2015.

PT Samuel Aset President Director Agus Yanuar, whose SAM Indonesian Equity Fund has returned 46 percent this year and beat 99 percent of its peers, said Adaro and United Tractors were among his top five holdings at the end of September.

“We overweighted coal mining stocks about three months ago when we became convinced the rally in the coal price would last,” he said from Jakarta. “We expect the coal price to remain this high for at least another year” and the Trump victory should be positive for commodities, said Yanuar.

Coal Forecasts

The price of power-station coal at Australia’s Newcastle port surged 34 percent in October, the most since February 2009, and has more than doubled this half to almost $110 a ton. China’s efforts to reverse a four-year collapse in prices and help local miners repay debt have pushed coal higher and faster than anyone anticipated. Nickel has advanced 28 percent this year.

Sucorinvest’s Paul said he expects the coal price to average more than $70 a ton in 2017, while Bob Kamandanu, chairman of Indonesian commodity trader Trafigura Group, said in October that he expected the Newcastle coal price to stay in a $80 to $90 range next year, although he warned it would depend on Chinese policy. PT Indika Energy President Director Arsjad Rasjid said last month that he sees the rally being sustained and the company, Indonesia’s third-biggest coal miner, is planning to raise output next year.

Alan Richardson, a Hong Kong-based fund manager at Samsung Asset Management Ltd., isn’t as bullish, and expects Indonesian coal miners to “face a correction” in the next one to two months. “The coal price has already overshot the Chinese government’s long-term coal price target,” he said.

The raw-materials renaissance is one of the few bright spots for Southeast Asia’s largest economy, where economic growth slowed to 5.02 percent last quarter from a year earlier. The JCI rallied 17 percent this year through August before losing momentum, and the prospect of higher-than-forecast U.S. borrowing costs doesn’t bode well for its future trajectory or the rupiah.

Room to Run

Aberdeen Asset Management sees the mining stocks rally continuing as the price rises take time to feed through to company earnings. Despite the increases this year, the mining index still has a 12-month price-to-earnings ratio of just 4.7, compared with 14.3 for the JCI.

“The stocks still have room to run a bit more as earnings have yet to feed through,” said Bharat Joshi, the Jakarta-based investment director for Indonesia at Aberdeen Asset. “We added to our United Tractors’ position early this year and held onto Indo Tambangraya as well as Vale Indonesia as valuations continued to remain attractive.”

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