Indonesian fund managers say they will put their money in construction and telecommunication sectors in 2017. (Antara Photo/Ampelsa)

Construction, Telco Stocks, Medium-Term Bonds: Local Fund Managers' Top Picks for 2017


JANUARY 02, 2017

Jakarta. Indonesian fund managers said they will put their own money in construction and telecommunication sectors in 2017, banking on the government's sustained focus on infrastructure projects across the country that they expect will bring steady income to locally-oriented firms amid renewed uncertainties in the global economy.

MNC Asset Management director Suwito Haryatno said in an email sent to the Jakarta Globe that construction-related sectors are expected to grow strongly in 2017, boosted by spillovers from government-led infrastructure programs, contract renewals and new orders in 2016  which will also be the main sources of the company's revenue in the next three to four years.


Four state-owned construction companies — Wijaya Karya, PP Properti, Waskita Karya and Adhi Karya — for example, booked new contracts valued at a combined Rp 135 trillion ($10 billion), up 73 percent year-on-year as of November 2016, according to data compiled by MNC Asset Management.

Government spending on infrastructure increased 9.3 percent to Rp 347 trillion in 2017 from Rp 317 trillion last year in order to drive the economy.

MNC Asset Management also mentioned Waskita Beton Precast stock, a subsidiary of state-owned builder Waskita Karya, as their top pick in 2017, praising the company's huge prospect as it plans to increase its production capacity to 3.8 million tons by 2018 from 2.3 million tons in 2016.

This year, Waskita Beton Precast expects to bag Rp 11 trillion in new contracts, 39 percent more than the company's initial target. The shares of the company, which trades under the WSBP ticker, have risen 6.7 percent in the last three months of 2016.

Head of Sales at RHB Asset Management Edward Narodo echoed the projections, saying construction and telecommunication stocks will be overweight  or better value for money than others — in 2017.

Companies from these sectors have fewer competitors, are expected to post higher net income and will likely have stable revenues from expansion plans, Edward said.

State-controlled Telekomunikasi Indonesia (Telkom), the country's largest network provider, is another excellent prospect in 2017, with an expanded 4G mobile and optical fiber network to earn more revenue from broadband customers, Edward said.

Telkom's shares dropped 7.6 percent in the last quarter of 2016, but rebounded in the final week of the year.

Also, fund managers expect repatriated funds from the tax amnesty program will help boost domestic demand to benefit companies in sectors like property, financial services and consumers goods  such as cars, food, retail and electronic goods.

Indonesia managed to attract Rp 143 trillion worth of assets previously hidden abroad with its flagship tax amnesty program, which amends back taxes and their penalty in exchange for declaration or repatriation of assets and fee payment on a small percentage of the assets.

Bond, mid-term bond

In the bond market, fund managers prefer short-term and medium-term bonds in 2017 since their shorter maturity time will lessen the impact from any interest rate hike.

"The US Federal Reserves have hinted they may increase their rate three times in 2017, as they anticipate higher economic growth in the world's largest economy," MNC Asset Management said in its email.

The Fed already raised its interest rate by 25 points in December. Bank Indonesia, the country's central bank, responded by keeping its benchmark interest rate at 4.75 percent.

Bank Indonesia still needs to boost domestic growth, but it recognized that it lacked room to maintain its previously loose fiscal policy.

Higher interest rates make long-term bonds more risky and less attractive, especially to foreign investors. Indonesia's 10-year bonds' yield has moved up 87 basis points in the last quarter of 2016 as  investors sold off assets to reduce risks of missing out on higher returns in the US if they hold on to local long-term bonds until they mature.

Bond price moves inversely to its yield.

Foreign investors have Rp 666 trillion in government bonds as of Dec. 29, or 38 percent of the government's total tradable securities. In October, foreign investors held more than Rp 685 trillion in government bonds.

Among MNC Asset Management's own top picks are FR0069, a government bond due to mature in 2019, and the Islamic government bond PBS006, due to mature in 2020.