Jakarta. Asset managers projected that returns on the equity market this year could outpace returns from fixed income instruments on the back of recovering global commodity prices and better consumer spending.
"In the past two years, fixed income returns recorded strong gains. But, for this year, we project that returns from the equity market will surpass fixed income," said Ari Pitojo, chief investment officer of Eastspring Investment, on Wednesday (07/02).
As of Wednesday, the Jakarta Composite Index was 22 percent higher than it was a year ago, while the Indonesia Composite Bond Index rose 15.25 percent, according to Indonesia Bond Pricing Agency (IBPA) data.
Data from local finance research firm Infovesta showed that returns on equity funds rose 4.71 percent since the beginning of this year, while returns on fixed income indexes recorded a 0.6 percent gain over the same period.
Ari, who helps manage a $5.5 billion investment fund at Eastspring, said the increase in companies' net profits — especially firms that are included on the Morgan Stanley Capital International (MSCI) index, a list that tracks 29 companies with large market capitalization — will support a stock market rally this year.
Companies like Astra International, Bank Central Asia and Unilever Indonesia are among those on the MSCI list.
Net incomes of the companies included on the MSCI index are projected to increase 13.4 percent this year, Morgan Stanley said.
The country's strong economic fundamentals are also expected to prove conducive to an upward trend in the stock market. The International Monetary Fund expects Indonesia's growth rate to accelerate to 5.3 percent this year from 5.07 percent last year, while the government has set a target of 5.4 percent.
"The improvement in purchasing power due to the government's decision to increase minimum monthly wages this year will also help boost positive sentiment in the capital market," Ari said.
Despite the US Federal Reserves's plan to increase benchmark rates three times this year, Bank Indonesia will still maintain interest rates at 4.25 percent, according to Eastspring projections.
Ari also projected that the country's inflation rate will remain in check or at about 3.8 percent this year, far below the government's inflation cap of a maximum 4.3 percent.
Indonesia also secured investment grade ratings last year from all three major credit rating agencies -- Fitch Ratings, Standard & Poor’s and Moody’s -- which is expected to draw more foreign investors.
Ahead of regional elections to be held in the first half of this year, Ari advised investors not to worry much about political upheaval, saying that Indonesian elections have historically been quite peaceful.
"A pick-up in consumer spending during the election period will also bolster the country's economy," said Ari, adding that the government is also expected to quicken the pace of ongoing infrastructure projects ahead of 2019's presidential election.
Eastspring, whose assets under management reached Rp 75 trillion ($5.5 billion) as of Jan. 31, is considering launching new products in the first half of this year, comprising of two unit-linked products and an equity-based mutual fund.