Indonesian Stocks Stay Buoyant Even as Foreign Investors Exit
(Bloomberg) -- Yunus Irianto, a 61-year-old shopowner in Jakarta, has been putting more money into his bank account and trading stocks as his business suffers.
“My sales these days are about 40 percent or even half of what they used to be in 2014,” said Irianto, who sells computer hardware and WiFi routers in Mangga Dua, one of the busiest trade districts in the Indonesian capital. “I prefer to put my money in the bank or trade stocks, hoping that I would get more out of it.”
His behavior may explain why the Jakarta Composite Index is at a record high despite the recent risk-off sentiment that’s caused global investors to sour on Asian markets. Foreigners pulled a record $2.1 billion from Indonesian equities in the September quarter, according to data compiled by Bloomberg.
Local businesses now face tougher scrutiny from tax and customs authorities as part of a government campaign to boost tax revenues, said Jeffrosenberg Tan, head of strategy at PT Sinarmas Sekuritas in Jakarta. That’s prompting investors like Irianto to put their money to work in stocks or park it in savings accounts.
Household consumption, which accounts for more than half of the gross domestic product of Southeast Asia’s biggest economy, was weaker than expected in the second quarter. At the same time, the customs authority has tightened checks on imports in the past year, making it harder or more expensive for some businesses to ship in goods.
Jemmy Paul, investment director at PT Sucorinvest Asset Management, said above-average valuations and a weak external backdrop make the rally prone to reversal. The JCI trades at 16 times blended forward 12-month earnings, compared with its five-year mean of 14.6 percent, data compiled by Bloomberg show. The benchmark gauge gained as much as 0.6 percent to a record high of 5,936.138 on Monday.
“Valuation is getting very expensive and the rally has been so far supported only by blue-chip stocks and local investors,” said Paul, whose Sucorinvest Equity Fund outperformed 97 percent of peers over the past year.
Slower-than-expected execution of infrastructure projects, external pressure from a potential U.S. Federal Reserve rate rise and a tax amnesty program that hasn’t translated into increased property sales, are among the factors that led to overseas funds selling Indonesian equities, said Alan Richardson, a fund manager at Samsung Asset Management.
“We are entering a tricky period for emerging markets in the fourth quarter with the triple whammy of a Fed hike, balance sheet tapering and U.S. tax reform,” Richardson, whose top holdings include Indonesian companies such as PT Telekomunikasi Indonesia, PT Bank Central Asia and PT Astra International, wrote in an email.