In a year when stocks around the
world are getting cheaper, Indonesian shares are growing more
expensive as surging profits lure Asia’s biggest investors.
The Jakarta Composite Index’s 11 percent advance this year
lifted its valuation to 15 times estimated profit, the highest
level among 45 benchmark stock gauges tracked by Bloomberg and a
record 36 percent premium to the MSCI All-Country World Index.
Price-earnings ratios fell in every other market, declining by
an average 15 percent, data compiled by Bloomberg show. The
index dropped 0.4 percent to 4,122.086 as of yesterday’s close.
An PT Indofood Sukses Makmur
employee monitors instant noodles along the production line at the
company's instant noodle factory in Cibitung, Indonesia. Indofood has
boosted earnings by an average 48 percent during the past four years and
topped analysts’ projections for eight straight quarters, data compiled
by Bloomberg show. Photographer: Dimas Ardian/Bloomberg
Aug. 5 (Bloomberg) -- Mark
Mobius, executive chairman of Templeton Asset Management’s emerging
markets group, talks about the outlook for global stocks and his
investment strategy.
More than $4.4 trillion have been wiped out from equity market
values worldwide amid a sell-off that drove the MSCI All-Country World
Index down more than 10 percent from this year’s high into a so-called
correction. Mobius speaks from Tokyo with John Dawson on Bloomberg
Television's "On the Move Asia." (Source: Bloomberg)
Amundi Asset Management, Bank Julius Baer & Co. and Baring
Asset Management, which oversee more than $1 trillion, say
premium valuations in Jakarta are justified at a time when debt
crises threaten growth in the U.S. and Europe and the biggest
emerging nations lift interest rates to curb consumer prices.
Indonesia is among the top countries in Templeton Asset
Management’s investment list, Mark Mobius, executive chairman of
Templeton’s emerging markets group, said in a Bloomberg
Television interview today.
Indonesia’s inflation has dropped for six months, the
government says economic growth may accelerate to 7 percent next
year and analysts forecast profits will rise at twice the pace
of Brazil, Russia, India and China.
Indonesian stocks are “expensive for the right reason,”
Khiem Do, the Hong Kong-based head of multi-asset strategy at
Baring Asset Management, said by phone on Aug. 4. “It still has
very healthy growth.” His firm oversees about $10 billion and
has “overweight” holdings in Indonesia.
Economic Growth
The $706 billion economy, the eighth-largest among emerging
markets, has expanded twice as fast as global output since 2008
amid buoyant Chinese demand for energy exports and a boom in
consumer spending that boosted earnings at companies from
Jakarta-based PT Indofood Sukses Makmur to PT Gudang Garam, a
Kediri-based cigarette maker.
Indonesia’s expanded 6.49 percent in the three months
through June from a year earlier, the Central Bureau of
Statistics said in Jakarta today. That compares with the revised
6.47 percent gain in the previous quarter.
Faster growth and lower inflation spurred Standard & Poor’s
and Fitch Ratings to say this year they may give President
Susilo Bambang Yudhoyono’s government an investment grade credit
grade for the first time since the Asian financial crisis in
1997.
Rate Outlook
Bank Indonesia has kept benchmark borrowing costs steady
since February at 6.75 percent, or 25 basis points above a
record low, as inflation declined to 4.6 percent in July from 7
percent six months earlier. India and Brazil both lifted
interest rates five times this year and China raised rates three
times.
The Indonesian government forecast on July 5 that the
economy may grow as much as 7 percent in 2012, up from a
previous estimate of 6.9 percent. The economy probably grew at a
6.5 percent rate in the second quarter, according to the median
estimate of economists surveyed by Bloomberg before the
government’s scheduled report today. Indonesia expanded 6.1
percent last year, compared with 10.3 percent growth in China
and 10.4 percent in India, International Monetary Fund data show.
Indonesia “is a secular growth story for years to come,”
Timothy Teo, a Singapore-based money manager at Amundi, which
oversees about $980 billion, wrote in a July 20 e-mail.
“Interest rates are low by historical standards and that is
driving consumption” for the country’s 245 million people, said
Teo, who predicts stock valuations may climb to as high as 20
times earnings. Indonesia is Asia’s third-most populous nation
after China and India.
Record High
Indonesian companies are taking out more loans to invest in
the nation’s growth. Syndicated loans in Southeast Asia’s
biggest nation total $8.5 billion since January, a 60 percent
jump from the same period in 2010, according to data compiled by
Bloomberg.
The Jakarta Composite index (JCI) hit a record high of 4,193.44
on Aug. 1, as Indonesia’s stock market value climbed to $445
billion, according to data compiled by Bloomberg. The Shanghai
Composite Index, the benchmark measure for China’s $3.8 trillion
equity market, has declined 4.4 percent this year and is 56
percent below its October 2007 peak. The MSCI All-Country World
Index has slipped 5 percent since the end of December, including
an 8.9 percent tumble during the past week on concern the U.S.
economy may fall back into recession.
Valuations
Indonesia’s local currency bonds handed investors a gain of
11 percent this year, the best performance among 10 regional
markets, according to indexes compiled by HSBC Holdings Plc. The
rupiah has appreciated 5.8 percent in 2011, the second-best
performance among Asia’s ten most-traded currencies.
The Indonesian stock benchmark’s price-earnings ratio has
increased to 15 from 13.9 at the start of the year. Its 36
percent premium over the MSCI All-Country index compares with an
average discount of 1 percent since January 2006, according to
data compiled by Bloomberg. The Jakarta gauge traded this week
at 3.3 times book value, or assets minus liabilities, the
highest level worldwide and a record 92 percent more than the
global index.
Profits at the 334 companies in the Jakarta gauge that
posted second-quarter results so far climbed 32 percent, beating
analysts’ forecasts by an average 4 percent, according to data
compiled by Bloomberg. That compares with 24 percent profit
growth in the MSCI BRIC Index of shares in Brazil, Russia, India
and China, which was 3.6 percent below estimates.
Higher Earnings
Earnings in Indonesia may jump 28 percent in the next 12
months, more than double the 13 percent growth forecast for the
MSCI BRIC index, more than 950 analysts’ forecasts show.
The increase in valuations may leave Indonesian share
prices vulnerable to declines should rising oil prices reignite
inflation and strain public finances, said Alan Richardson, who
helps oversee about $82 billion as a money manager at Samsung
Asset Management.
The government lifted its 2011 crude price estimate to $95
a barrel from $80 a barrel and raised its projected fuel subsidy
to 129.7 trillion rupiah from about 96 trillion rupiah on July
22. Fuel and electricity subsidies represent about 14.7 percent
of the total government budget, data compiled by Bloomberg show.
Crude oil has climbed 16 percent this year to $110 a barrel in
London as uprisings in North Africa cut output.
“Once you get a shock like inflation being higher than
expected by a large amount, then all bets are off again,”
Richardson said in an interview. “The market is not priced for
any disappointment.”
‘Off the Table’
Monetary policy in China may cut demand for Indonesian
exports such as thermal coal and palm oil. The world’s second-
biggest economy is Indonesia’s third-largest market after Japan
and the European Union, according to the World Trade
Organization.
“It probably makes sense to take some money off the
table,” Binay Chandgothia, a Hong Kong-based fund manager at
Principal Global Investors, which oversees more than $200
billion, said in a phone interview. “Valuations are a bit of a
concern.”
Price-earnings ratios in Indonesia are still below their
peak. The Jakarta gauge traded at 16.6 times 12-month profit
estimates in November 2007 and reached 3.8 times book value in
December 2007, data compiled by Bloomberg show.
“It is already expensive, but the potential for it to rise
further is still there,” Ruben Sukatendel, who helps manage theequivalent of $459 million at PT BNI Securities in Jakarta, said
in July 20 phone interview.
Domestic Markets
Growing local demand will provide a cushion against the
global economic slowdown, said Terence Tan, a Singapore-based
head of market specialists in Asia at RBS Coutts Bank Ltd.
Domestic consumption accounts for about 56 percent of
Indonesia’s economy and retail sales growth has averaged 17
percent this year.
More than sixty-six percent of Indonesians are between 15
and 64, and the working-age population may grow by about 20
percent over the next two decades, according to HSBC. The
increasing labor force, along with wages about 66 percent below
the level in China, may lure global manufacturers, the London-
based bank wrote in a July 29 report.
“There is recognition that Indonesia has a sizeable
domestic-driven market that should insulate it from some of the
global macro concerns,” RBS’s Tan wrote in a July 20 e-mail.
PT Adaro Energy, a Jakarta-based coal producer, is poised
to benefit from Indonesia’s expansion, Kim Kwie Sjamsudin, an
analyst at Citigroup Inc., wrote in a report last month. Adaro
said on July 29 that second-quarter production rose 19 percent,
while sales surged 27 percent to a record. Sjamsudin’s share-
price estimate of 3,850 rupiah is 48 percent higher than
yesterday’s closing level.
Gudang Garam
Julius Baer’s Mark Matthews recommends shares of Indofood,
the nation’s biggest maker of instant noodles, and Gudang Garam.
Indofood has boosted earnings by an average 48 percent during
the past four years and topped analysts’ projections for eight
straight quarters, data compiled by Bloomberg show.
The stock is trading at 15.3 times next year’s profit
estimates after rallying 33 percent this year. That compares
with 23 times for regional peers, according to data compiled by
Bloomberg.
Gudang Garam’s first-half net income rose 29 percent from a
year earlier. Earnings are poised to grow 20 percent this year,
more than six times faster than global tobacco companies,
analysts’ estimates compiled by Bloomberg show. The stock is
valued at 18 times 2012 earnings forecasts after climbing 32
percent this year.
Investors are “focused on earnings growth,” said Matthews,
the Singapore-based head of research for Asia at Bank Julius
Baer, which manages about $205 billion. “Where else can you get
this kind of growth without serious inflation?”
To contact the reporter on this story:
Michael Patterson in London at
mpatterson10@bloomberg.net;
Weiyi Lim in Singapore at
wlim26@bloomberg.net;
Yudith Ho in Singapore at
yho29@bloomberg.net.
To contact the editor responsible for this story:
Gavin Serkin at
gserkin@bloomberg.net;
Darren Boey at
dboey@bloomberg.net.
Source:
Bloomberg, Aug 05, 2011
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