Ashmore Buys Jakarta Consumer Stocks on Bet Rally to Continue


JANUARY 22, 2015

Jakarta. Indonesia’s top-performing fund manager will add to holdings of consumer, property, banking and energy services companies, anticipating President Joko Widodo’s reforms will drive a 15 percent stock index return this year.

Retailers Matahari Department Store and instant noodle maker Indofood CBP Sukses Makmur are among stocks that stand to gain the most from increased consumer spending as economic growth accelerates and commodity prices slump, according to Arief Wana, director at Ashmore Asset Management Indonesia. Wana forecast the

Jakarta Composite Index would climb to 6,000 by the end of 2015. It rose 0.7 percent on Thursday to close at a record 5,253.18.

Joko plans to boost economic growth to 5.8 percent this year from an estimated 5.1 percent in 2014. He came to office in October pledging to spend heavily on roads, ports and railways and cut red tape as he seeks to attract investment and revitalize Southeast Asia’s largest economy.

In his first three months, he freed up Rp 230 trillion ($18 billion) of budget funds for development by scrapping gasoline subsidies and capping government aid for diesel.

“I am cautiously optimistic on the outlook with all the policies that the government has put out,” said Wana, whose Ashmore Dana Progresif Nusantara returned 37 percent last year, the most among local peers with more than $100 million of assets under management. “I also expect foreign direct investment and liquidity to keep improving.”

Wana also plans to buy stock in energy services provider Wintermar Offshore Marine, which is trading at eight times projected 12-month earnings, below its one-year high of 14.2.

Indonesia’s benchmark stock index rallied 22 percent last year in local currency terms, making it the best performer in Southeast Asia after the Philippines.

Expectations for a Joko-driven building boom drove a 56 percent jump in a measure of construction, property and real estate companies in 2014, its best annual gain since 2007 and the top performer among nine industry groups.

The Jakarta measure for consumer goods companies gained 3.6 percent to a record high this year. Tumbling oil and raw material costs should have a positive effect on retail spending, Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking, said on Monday.

Domestic consumption accounted for nearly 56 percent of Indonesia’s gross domestic product in the third quarter, according to the country’s statistics bureau.

“Consumer companies such as Indofood CBP should benefit as the lower energy costs should help both household spending and bring down their distribution costs,” Wana said.

Shares in Indofood CBP Sukses Makmur, which produced 12.7 billion packs of instant noodles in 2013, gained 1.2 percent to close at a record high of Rp 14,675. Parent company Indofood Sukses Makmur added 2.7 percent, closing at Rp 7,625, the highest level since March 17. Shares in Matahari Department Store were down 0.6 percent to close at Rp 15,500.

Shares of builders, expected to be the biggest beneficiaries of the president’s infrastructure building program, have become too expensive after last year’s rally, Wana said.

The share price of Wijaya Karya, the largest state builder by market capitalization, more than doubled in 2014 and trades at 26.5 times projected 12-month earnings, a 75 percent premium over the benchmark index. Waskita Karya’s shares are valued at a multiple of 27.7, and those of Pembangunan Perumahan trade at 25 times.

“I like contractors a lot, I just don’t like the valuation,” Wana said. “I think contractors are priced for perfection.”