Indonesian stocks oversold?

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View of the Indonesian Stock Exchange in Jakarta: The country's stock performance was not great this year, and some say it's time for bottom-fishing.

Indonesia’s lagging 2012 stock performance looks nothing like its stellar 2011 track record yet – but is the country truly on the way down or is it time to take advantage of low valuations? Citigroup sees 15 per cent upside for the country’s equities over the rest of 2012.

By Ashley Boncimino

Last year, the country’s main stock market indicator reported a 3.5 per cent increase from the year before, boosting the country to the third best performing in Southeast Asia. This, paired with the highest GDP growth in 2011 in over a decade, meant high expectations for Indonesia’s stocks in 2012. Yet, year-to-date, the Jakarta Stock Exchange Composite Index has fallen 1.72 per cent, tumbling from 4224.003 points in early May to 3799.766 in June.

In comparison, regional peers such as Thailand’s SET Index and the Philippines’ PSE Composite Index were up ten and 15 percent, respectively, since the start of the year.

While Indonesia maintains a strong consumer base and steady supply of resources, the country’s stock market health and overall prospects depend on a mixed bag of contributing factors. No doubt the country’s somewhat lacking performance partially stems from the debt and banking crisis and the deteriorating growth prospects globally. The economic slowdown in developed countries from fiscal tightening programmes means decreased exports in developing and emerging markets – Indonesia saw a 3.46 per cent decrease in exports in April, the first drop since September 2009. Though exports to China increased 31 per cent, exports to the European Union and the US fell, suggesting single digit export growth for the next quarter.

Additional concerns about inflation and the country’s currency demand firm action by the Bank of Indonesia to recapture foreign investor interest and restore dollar liquidity. Year-to-date, the rupiah has fallen almost six per cent, the second worst performing in Asia. To increase dollar liquidity and stabilise its currency, the Bank of Indonesia sold around $2 billion rupiah in a week, and collected $700 million in dollar term deposits. Inflation – a constant concern in many Southeast Asian economies – slowed unexpectedly in mid May for the first time in three months as rice costs remained stable and the falling cost of oil alleviated fears that the government would remove fuel subsidies.

The government is also actively focusing on other means of economic growth, like boosting domestic consumption and infrastructure spending. As the fourth most populous country in the world, private consumption accounts for a whopping 55 per cent of GDP. The government’s fuel subsidies and the recent increases in disposable incomes of the youthful middle class contribute to the strong local demand. Additionally, Indonesia’s robust economic health in 2011 provided a budget surplus of $2.5 billion that can now be partially used to kickstart local construction and infrastructure projects.

Because of the country’s “solid growth” which is expected to be “among the fastest in Asia Pacific over the next two years”, analysts of Citigroup are confident that Indonesian stocks could rise 15 per cent in the next two quarters, according to a report published earlier this month.

Whether or not the central bank’s decisive action maintains liquidity, the Bank of Indonesia said economic growth is expected to remain within 6.3 and 6.7 per cent, though perhaps on the lower end. However, if foreign investments are drastically reduced and the rupiah continues to weaken, the country’s long term economic prospects could dampen the growth of one of Southeast Asia’s strongest economies.

 

 

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Reading Time: 3 minutes

View of the Indonesian Stock Exchange in Jakarta: The country's stock performance was not great this year, and some say it's time for bottom-fishing.

Indonesia’s lagging 2012 stock performance looks nothing like its stellar 2011 track record yet – but is the country truly on the way down or is it time to take advantage of low valuations? Citigroup sees 15 per cent upside for the country’s equities over the rest of 2012.

Reading Time: 3 minutes

View of the Indonesian Stock Exchange in Jakarta: The country's stock performance was not great this year, and some say it's time for bottom-fishing.

Indonesia’s lagging 2012 stock performance looks nothing like its stellar 2011 track record yet – but is the country truly on the way down or is it time to take advantage of low valuations? Citigroup sees 15 per cent upside for the country’s equities over the rest of 2012.

By Ashley Boncimino

Last year, the country’s main stock market indicator reported a 3.5 per cent increase from the year before, boosting the country to the third best performing in Southeast Asia. This, paired with the highest GDP growth in 2011 in over a decade, meant high expectations for Indonesia’s stocks in 2012. Yet, year-to-date, the Jakarta Stock Exchange Composite Index has fallen 1.72 per cent, tumbling from 4224.003 points in early May to 3799.766 in June.

In comparison, regional peers such as Thailand’s SET Index and the Philippines’ PSE Composite Index were up ten and 15 percent, respectively, since the start of the year.

While Indonesia maintains a strong consumer base and steady supply of resources, the country’s stock market health and overall prospects depend on a mixed bag of contributing factors. No doubt the country’s somewhat lacking performance partially stems from the debt and banking crisis and the deteriorating growth prospects globally. The economic slowdown in developed countries from fiscal tightening programmes means decreased exports in developing and emerging markets – Indonesia saw a 3.46 per cent decrease in exports in April, the first drop since September 2009. Though exports to China increased 31 per cent, exports to the European Union and the US fell, suggesting single digit export growth for the next quarter.

Additional concerns about inflation and the country’s currency demand firm action by the Bank of Indonesia to recapture foreign investor interest and restore dollar liquidity. Year-to-date, the rupiah has fallen almost six per cent, the second worst performing in Asia. To increase dollar liquidity and stabilise its currency, the Bank of Indonesia sold around $2 billion rupiah in a week, and collected $700 million in dollar term deposits. Inflation – a constant concern in many Southeast Asian economies – slowed unexpectedly in mid May for the first time in three months as rice costs remained stable and the falling cost of oil alleviated fears that the government would remove fuel subsidies.

The government is also actively focusing on other means of economic growth, like boosting domestic consumption and infrastructure spending. As the fourth most populous country in the world, private consumption accounts for a whopping 55 per cent of GDP. The government’s fuel subsidies and the recent increases in disposable incomes of the youthful middle class contribute to the strong local demand. Additionally, Indonesia’s robust economic health in 2011 provided a budget surplus of $2.5 billion that can now be partially used to kickstart local construction and infrastructure projects.

Because of the country’s “solid growth” which is expected to be “among the fastest in Asia Pacific over the next two years”, analysts of Citigroup are confident that Indonesian stocks could rise 15 per cent in the next two quarters, according to a report published earlier this month.

Whether or not the central bank’s decisive action maintains liquidity, the Bank of Indonesia said economic growth is expected to remain within 6.3 and 6.7 per cent, though perhaps on the lower end. However, if foreign investments are drastically reduced and the rupiah continues to weaken, the country’s long term economic prospects could dampen the growth of one of Southeast Asia’s strongest economies.

 

 

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