A man observes monitors showing stock price movement at Indonesia Stock Exchange in Jakarta last August. (B1 Photo/Mohammad Defrizal)

Fund Managers Bet on Indonesia's Cyclical Stocks, See Long Rally Ahead


NOVEMBER 26, 2020

Jakarta. Fund managers are bullish on Indonesia's stock market prospect as encouraging signs on global and domestic economic recovery would increase capital inflow to the country in search of gains in cyclical stocks like properties, consumer, automotive, infrastructure, and banking. 

Speaking at a session in a series of webinars in BeritaSatu Media Holding's Economic Outlook 2021 from Nov 24-26, Dannif Utoyo Dannusaputro, the president director of Mandiri Manajemen Investasi, said Joe Biden's victory in the United States's 2020 election should ease trade war tensions between the US and China, critical for lifting the global investor's confidence in emerging markets like Indonesia. 

Also, globally, low interest rates, especially in the US, would force foreign investors to look for more attractive investment opportunities in emerging markets. "The Fed has conveyed a signal that it will keep the FFR interest rate at a low level until 2023," Dannif said.

Suheri Lubis, the chairman of the Indonesian Pension Fund Association (ADPI), said foreign capital inflows have played a big part in lifting the Jakarta Composite Index (JCI) to above 5,500 this week from its pandemic low in April and might still push higher in 2021.  


"JCI today is at the same level as 2017. That means that our market has the potential to catch up," he said in the same event. The index reached an all-time high of 6,660 in 2018. 

Suheri advised investors to increase the portion of their investment allocation to stock instruments, especially since the emergence of the Covid-19 vaccine is increasingly evident.

"If Covid-19 can be overcome, it will bring optimism and a rebound in the stock market," he said.

Investment bank JP Morgan has also upgraded its recommendation for Indonesian stocks to overweight from neutral with a new target for JCI of 6800 in 2021, based on the expectation of returning foreign inflow, the 2020 Law about Job Creation impact on foreign direct investment, and US dollar weakening.

"Our top five picks skewed towards cyclical/value with emphasize on value are Bank Central Asia, United Tractors, Jasa Marga, Indocements, and Telkom," JP Morgan said in a recent note to client. 

Mandiri Investment Management shared Suheri's and JP Morgan's view and set to increase the portion of typical cyclical stocks, compared to defensive stocks.

"For 2021, there will be a lot of potential upside in cyclical stocks," Dannif said. The investment manager with Rp 47 trillion ($3.3 billion) assets under management, the largest in Indonesia, said cyclical stocks with a potential upside consist of the property, consumer, automotive, infrastructure, and banking sectors.

"Since the fourth quarter of 2020, we have started to rotate into cyclical stocks that have been sensitive to interest rates," Dannif said.

Irwanti Muljono, the chief investment officer o at Schroders Investment Management Indonesia, the country's third-largest investment manager by assets, said that while holding similar optimism, she would pay close attention to the government implementation of the 2020 Law about Job Creation and its impact on labor issues, investment developments, and economic growth. 

Djustini Septiana, a deputy commissioner for capital market supervision at the Financial Services Authority (OJK), said the office worked on improving supervision in the capital market to maintain trust among market participants. Indonesia's stock market has been rocked by mega scandals this year that brought down two of the country's largest insurers Ausransi Jiwasraya and Asuransi Jiwa Bersama Bumiputra.

"Trust of market participants that must be maintained. For this matter, OJK is committed to increasing supervision and enforcement of regulations in the capital market," she said.

Separately, Keng Swee Koh, the executive director of wealth management at Bank DBS Indonesia, said next year the JCI was likely to continue strengthening, serving as a launchpad for the country's wealth management industry growth acceleration over the next few years. 

Today, the assets under management in the wealth management industry are only 4 percent of Indonesia's gross domestic product (GDP), relatively low compared to the 15-25  percent numbers seen in neighboring countries, Keng said. 

Keng, citing a study from Hubbis, said the wealth management industry often take off if a country's GDP per capita reaches $5,000. Indonesia may reach that level four to five years from today's level of $4,100, a separate study from the International Monetary Fund showed. 

"Once it hit $5,000, which we will think will happen over the next few years, things will really take off and accelerate. When people are more comfortable getting their needs taken care of, they will start to invest," Keng said.