Indonesia's Biggest Fund Turns Bullish on Banks, Property Stocks

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Indonesian banks and property stocks are beginning to look more appealing with the central bank signaling a cut in interest rates for the first time in almost two years, according to the nation’s largest mutual fund.

Bank Indonesia’s decision to slash the reserve ratio requirement for lenders starting next month is set to lower the cost of funds, said Alvin Pattisahusiwa, president director of PT Mandiri Manajemen Investasi. With the central bank saying a rate cut is only “a matter of time and magnitude,” rate-sensitive sectors such as financials and property will perform better in the short term, he said.

“Interest rates will decline in the short term and we can look at the banks and property stocks, which are interest-rate sensitive,” Pattisahusiwa, whose mutual funds manage 49.3 trillion rupiah ($3.5 billion) of assets, said in an interview. A higher threshold for luxury tax on condos “is good for the property market, especially for those companies in the middle-to-high residential segment,” he said.

Pattisahusiwa declined to identify the winners among banking and property stocks. Some of his funds hold PT Bank Central Asia, Southeast Asia’s largest bank by market value, PT Bank Rakyat Indonesia and state-construction firm PT Wijaya Karya, according to data compiled by Bloomberg.

Two indexes made up of banks and non-bank finance companies and construction and property stocks are among the top performers in Indonesia this year as President Joko Widodo’s re-election fuels optimism he may carry on with the multi-billion dollar infrastructure boom, the highlight of his first term in office. The government is finalizing a $412 billion infrastructure spending plan for the next five years, which should benefit construction firms and banks seeking to finance projects.

As Jokowi, as Widodo is commonly known, tries to fix the country’s current account deficit by promoting manufacturing and reducing the reliance on commodity exports, investors may find opportunities to buy into companies poised to benefit from the president’s initiatives, Pattisahusiwa said.

Pattisahusiwa, whose fund is owned by PT Bank Mandiri, is betting on increased foreign fund flows into Southeast Asia’s largest economy as Indonesia sovereign bond yield differentials become wider, with the U.S. Federal Reserve flagging a rate cut and as the rupiah remains stable.

Foreign funds funneled $1.2 billion into government bonds this month and the inflows may continue, given the positive outlook for the nation’s economy, according to Bank Indonesia Governor Perry Warjiyo. The benchmark 10-year bonds rallied for 10 straight days through June 20, pushing yields down to an 11-month low last week.

The benchmark Jakarta Composite Index has rallied more than 8% after hitting a six-month low on May 17 with construction, property and infrastructure companies leading the gain. Mandiri Manajemen sees the index reaching 6,600 by the end of the year, Pattisahusiwa said.

To contact the reporters on this story: Fathiya Dahrul in Jakarta at fdahrul@bloomberg.net;Rieka Rahadiana in Jakarta at rrahadiana@bloomberg.net

To contact the editors responsible for this story: Thomas Kutty Abraham at tabraham4@bloomberg.net, ;Divya Balji at dbalji1@bloomberg.net, Teo Chian Wei

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