Funds Bet on Indonesia Consumption Revival on Stimulus

(Bloomberg) -- The promise of government stimulus just sent Indonesian consumer stocks to their best month in four years and two of the world’s biggest money managers are betting the gains will continue.

Deutsche Bank Wealth Management and Manulife Financial Corp. boosted holdings in the industry, shopping around after President Joko Widodo pledged more than 700 trillion rupiah ($52 billion) for infrastructure and assistance for the poor. Bank Indonesia said last month that domestic demand will be the main driver for Southeast Asia’s largest economy, which may grow at its fastest pace since 2013.

The Deutsche Invest II Asian Top Dividend Fund has raised its holdings in PT Indofood CBP Sukses Makmur and PT Indofood Sukses Makmur which produce staples such as noodles and baby food, according to data compiled by Bloomberg.

“Household consumption in Indonesia is likely to recover this year,” according to Andrew Swan, head of Asian and Global Emerging Market Equities for BlackRock Inc., who cited the stimulative impact tied to regional elections due this year, as well as stable electricity prices . “With commodity prices having stayed at a decent level for some time, the wealth effect could assist the consumption recovery.”

BlackRock’s passive investments include Indofood CBP, Indofood Sukses, and cigarette maker PT Hanjaya Mandala Sampoerna, the largest company in Indonesia by market capitalization.

Average sales of the nine consumer-related stocks in the MSCI Indonesia Index are likely to grow by 9.1 percent this year, faster than the average pace for the past three years of 7.5 percent, according to data compiled by Bloomberg. The Jakarta Consumer Goods Index jumped 12 percent in December, its steepest monthly gain since May 2013, as the consumer confidence index survey published by Bank Indonesia showed the reading was at its highest since at least 2002.

“Various government initiatives to preserve purchasing power this year will lead to higher consumption,” said Katarina Setiawan, Manulife’s investment strategist in Jakarta. “The results of the government’s effort to improve infrastructure and bring down logistic costs will start to be felt by consumers.”

Shares of Indofood Sukses jumped 1 percent Friday and Indofood CBP gained 1.2 percent as the consumer goods gauge rose as much as 1.8 percent.

Not everyone buys the thesis. Rather than promote spending, greater emphasis on tax collection to fund the infrastructure push and the prospect of further reductions in fuel subsidies as oil prices rise may impede it, according to Goldman Sachs Group Inc.

Read more: Eight Interest-Rate Cuts Later, Indonesia Still Isn’t Spending

“Expect weaker income growth and a lower propensity to spend over the next five years,” analysts led by June Zhu wrote in a Jan. 28 report. “Indonesian consumers had historically been earning double-digit wage growth, loosely taxed, and subsidized for their consumption. This is no longer the case.”

Tobacco Bet

Manulife has boosted the allocation to some consumer stocks such as tobacco companies for some of its funds because the valuations are better than other consumer plays, Setiawan said.

There are some positive trends emerging for economic growth in Southeast Asia, said Tuan Huynh, Asia-Pacific chief investment officer at Deutsche Bank Wealth Management.

Indonesia’s “retail and consumption sector has been disappointing for quite a while. It has now, from our perspective, bottomed out,” Huynh said.

--With assistance from Tassia Sipahutar Eko Listiyorini Karlis Salna Abhishek Vishnoi and Chris Nagi

To contact the reporter on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Jonathan Annells, Naoto Hosoda

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