BlackRock Bullish on Indonesia Stocks Despite Wave of Caution

(Bloomberg) -- The world’s biggest money manager is sticking to its positive view on Indonesian stocks even after strategists from Goldman Sachs Group Inc. to Morgan Stanley turned cautious following the benchmark index’s 14 percent slump from a February peak.

Signs of macroeconomic stability, a narrower current account deficit, and foreign reserves at higher levels than during the 2013 taper tantrum should help the country, according to Andrew Swan, BlackRock Inc.’s head of Asian and global emerging markets equities.

The Jakarta Composite Index sank 4 percent this week, making it the world’s worst-performing major stock market amid an emerging market rout that rattled investor confidence, sending the rupiah to its lowest since the 1998, during the Asian financial crisis.

“We remain positive on Indonesia and believe the economy is better able to handle higher U.S. 10-year yield compared to before,” Swan said in an email. Within Indonesia, the firm is “most overweight” on banks as fundamentals remain firm and non-performing loan ratios have been improving.

Swan’s remarks came as various strategists warned that the weakness in the nation’s currency may keep investors away as the emerging-market turmoil deepened. Morgan Stanley analyst Sean Gardiner said that there’s still danger of continued currency weakness that may spill over into corporate activity and Goldman’s Nupur Gupta wrote in a report that Indonesian asset classes may remain under pressure if the selloff in emerging markets continues.

Foreign investors have pulled out $3.8 billion from equities market this year, set for the biggest annual outflow from Indonesia ever.

Indonesian stocks did stage a comeback on Thursday. The nation’s key stock index rallied in late afternoon trading and closed 1.6 percent higher, the steepest daily gain in three weeks, after the government introduced measures to prop up the currency.

Swan expects some capital outflow in the near term, but fundamentals remain firm and “potential opportunities could arise should investors throw the baby out with the bath water.”

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, Tom Redmond

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