Pickup Trucks Push Bull Case for Indonesia Stocks at UBS Wealth

(Bloomberg) -- The head of asset allocation for Asia at UBS Wealth Management has been watching trucks -- truck sales to be exact.

Adrian Zuercher sees the increasing demand for transport vehicles in Indonesia as a leading indicator that consumption has returned to the world’s fourth-largest nation. And that makes its stock market a buy.

Here’s the logic: a growth in sales of heavy trucks signals that companies are transporting more goods as the commodities sector recovers. As strength in the industry spills over to peripheral businesses, orders for lighter vehicles also increase. And as companies invest more, they hire more, wages grow and people spend -- all key elements to a thriving equity market.

“It’s a pattern,” Zuercher said in a phone interview on Friday. “In particular if it’s starting to spread from the heavy trucks to the smaller ones, it’s an indication that the smaller businesses are doing well and it goes beyond the commodity sector -- and that’s a positive signal for us.”

UBS Wealth upgraded Indonesian stocks to overweight from neutral in May last year and will look to increase its exposure from the current about 5 percent allocation should growth in corporate earnings accelerate in the second quarter. Zuercher is optimistic about the consumer and financial sectors.

The total number of trucks sold in Indonesia grew to a 30-month high in March, as sales have more than doubled from a bottom in July 2016, UBS said, citing data from the country’s Automotive Industry Association. The smaller trucks -- those that can hold up to five tons in volume -- account for slightly more than half of the total, the data show.

With the benchmark Jakarta Composite Index down this year, UBS Wealth’s bull call on Indonesia has yet to pay off. Still, Zuercher is sticking to his target, forecasting an about 19 percent gain in the gauge by year-end, more than any other Asian market he tracks. The equity measure has begun to rebound after weak palm oil prices dragged down consumer stocks, sending the market to a low in March.

“We were a bit too early” but others have become “a bit impatient” now, Zuercher said. It takes time to see the macro change reflected on the earnings side, he added.

To contact the reporters on this story: Livia Yap in Singapore at lyap14@bloomberg.net, Harry Suhartono in Jakarta at hsuhartono@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Cecile Vannucci

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