Indonesia Stock Index May Add 13%, Credit Suisse Says

Bloomberg, By Shiyin Chen

Aug. 31 (Bloomberg) -- Indonesia’s Jakarta Composite Index, the world’s third-best performer this year, may rise 13 percent by the end of 2010, helped by growth and stability that was last seen more than a decade ago, Credit Suisse Group AG said.

The brokerage raised its forecast for the index to 2,685 from 2,276, while retaining an “overweight” rating for the market, according to a report by Credit Suisse analyst Arief Wana. The index climbed 0.9 percent to 2,377.25 on Aug. 28, and fell 1 percent to 2,352.90 as of 11:56 a.m. in Jakarta.

“The stronger social-political environment, led by the strong mandate of reelected President Susilo Bambang Yudhoyono, an earnings recovery and a low interest rate environment are likely to spur a rerating of the Indonesian market,” the analyst wrote. “The last period that we saw this was 1992 to 1997.”

The Jakarta Composite has gained 75 percent this year, trailing behind only Peru and Turkey gauges among 89 benchmark indexes tracked by Bloomberg. Yudhoyono’s reelection last month raised expectations the government will maintain policies that helped the economy expand 4 percent in the second quarter and curb inflation to a nine-year low.

The index may return to the record 2,830.26 reached in January last year within the next 12 months, PT Batavia Prosperindo Aset Manajemen said earlier this month. Automotive, banks and property stocks may lead gains, said Ruddy Raharjo, head of investment at Batavia, Indonesia’s sixth-best performing fund in the past five years.

‘Pricey’ Valuation

The gains have made valuations “pricey” and the benchmark index will likely stay at around 2,300 and 2,400 for a few months, said Suherman Santikno, head of research at Batavia. The gauge is valued at 30.75 times earnings, compared with the four- year average of 17.31, data compiled by Bloomberg showed.

“Businesses are still slow and yet share prices have gone up like crazy,” Santikno said in an interview in Jakarta today.

The government forecasts economic growth to slow to 4.3 percent this year from 6.1 percent in 2008 as the global recession reduces demand for export products.

The economy , Southeast Asia’s biggest, may expand by more than 5 percent next year, bolstered by a recovery in the global economy, Finance Minister Sri Mulyani Indrawati said on Aug. 24. Still, inflation may accelerate to more than 5 percent next year partly because of higher demand for goods, Sri Mulyani added.

PT United Tractors, Indonesia’s biggest heavy equipment seller, and PT Astra International, the nation’s biggest auto retailer, are among the brokerage’s top picks in the market. They also favor PT Indofood Sukses Makmur, PT Bank Rakyat Indonesia and PT Perusahaan Gas Negara.

Earnings per share may grow 17 percent among the Indonesian companies covered by Credit Suisse, the analyst wrote. The risks to those estimates are “on the upside,” especially for commodity companies, according to the report.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

Indonesia’s pull factor

By CECILIA KOK, The Star Online

DRIVEN by its strong domestic consumption, Indonesia has proved its economic resilience in the midst of a global slowdown after posting a relatively strong growth of 4% year-on-year (y-o-y) in the three months to June.

With a population of 226 million – the fourth largest in the world – Indonesia is increasingly being seen as an attractive investment destination by many foreign investors, including those from Malaysia.

In fact, Malaysian companies have become more active with their investments since the 1990s to tap the huge market opportunities that the country offers.

Among the sectors where Malaysian presence can be found are plantations, banking, telecommunications and infrastructure.

Cultivating growth

It is believed that about 50% of Indonesia’s oil palm plantations are controlled by Malaysian companies, including IJM Plantations Bhd, United Plantations Bhd, Asiatic Development Bhd, Sime Darby Bhd, Kuala Lumpur Kepong Bhd and IOI Corp Bhd.

Analysts opine that the limited agriculture land in Malaysia would continue to drive Malaysian planters to expand their plantation land bank.

Take IJM Plantations. Since last year, the company has been eyeing to acquire 40,000ha of oil palm estates to add to its existing land bank.

With 70% of its acquisition target met as at end-July, IJM Plantations is expected to complete its buying spree of oil palm estates there by the end of the year.

But expanding plantation land bank is not a smooth process, as foreign companies can be bogged down by costly land prices and bureaucratic red tape. In addition, companies also face the risks of “disruptive” changes in the terms and regulations set by authorities.

Singular Asset Management Sdn Bhd chief investment officer Teoh Kok Lin explains that such risks are a common problem in emerging economies like Indonesia.

But he says conditions have improved over the last five years, particularly under the current leadership that has been focusing on providing political stability and implementing sound economic policies to boost Indonesia’s economy.

Huge lure

Teoh commends the liberal policies practised by the Indonesian government for its banking system, such as allowing foreign equity ownership of up to 100%, as a huge draw to investors.

With banking penetration being just 33% of its GDP, the market offers tremendous medium- to long-term prospects for foreign bankers.

Among the Malaysian banks that have jumped on the Indonesian bandwagon are Bumiputra-Commerce Holdings Bhd (BCHB), through CIMB Niaga, and Malayan Banking Bhd (Maybank), through its controversial acquisition of PT Bank Internasional Indonesia (BII).

BCHB’s investment has been a fruitful venture, as CIMB Niaga accounted for 22% of the group’s pre-tax profit for the second quarter ended June, compared with 12% in the previous quarter. Contributions from its Indonesian operations are the main driver for its 2% y-o-y net profit growth to RM663.2mil for the quarter in review.

As for Maybank, it is targeting to break even on its investment in BII only by 2013. Maybank completed its acquisition of the bank at a whopping RM8.6bil in October last year.

In the telecommunications sector, Axiata Group Bhd and Maxis Communications Bhd have become active players in that market.

Axiata holds about 84% stake in Indonesia’s third-largest mobile phone operator, PT Excelcomindo Pratama Tbk, while Maxis owns 44% in PT Natrindo Telepon Seluler.

Going forward, Teoh believes that the pressing need for quality infrastructure there will make the construction sector the next attraction for Malaysian companies.

He sees emerging opportunities in the sector given the government focus in the area. In the Indonesian 2009 budget, US$7.5bil had been allocated for infrastructure spending and an additional US$703mil for labour intensive infrastructure projects in the country.

Kadin chief : RI must establish National Marketing Council

Thursday, August 27, 2009 19:50 WIB

Jakarta (ANTARA News) - A National Marketing Council (DPN) needs to be established to boost Indonesia`s marketing activities overseas, Indonesian Chamber of Commerce and Industry (Kadin) chairman MS Hidayat said.

"Formation of a National Marketing Council should become a trade strategy to integrate Indonesia`s export and trade promotion strategies overseas," Hidayat said here on Thursday after signing a Memorandum of Understanding on cooperation with PricewaterhouseCooper.

The DPN should be able to penetrate overseas markets and create new markets, he said.

The National Marketing Council should be also be able to respond to global trade challenges because the global economic crisis was not really over yet, he said.

Those sitting in the Council should be private businessmen or CEOs of private companies, and professionals of high integrity and dedication, he stated. He said bureaucrats should not be included in the proposed council.

The DPN must implement promotional activities which later could help boost Indonesia`s exports, he said.

Indonesia`s promotion activities and exports had not been very successful so far because there was no coordination among the various institutions concerned, he said.

Countries such as Thailand and South Korea had already set up their own national marketing councils, he said.

According to Hidayat, he had received information that European countries and the United States wanted to increase their imports from Indonesia.

Therefore, Indonesia must be more aggressive in promoting its products overseas, he said.

Consumers in SE Asia more confident

The Jakarta Post, Maarten Kallenberg, Analyst | Fri, 08/28/2009 10:01 AM

Consumer confidence is rising in the Southeast Asian region. The Asian Consumer Confidence Index by InsightAsia reports positive increases in consumer confidence in Indonesia, Singapore, Malaysia and Thailand.

A previous article by InsightAsia, a market research agency that specializes in the Asia Pacific region, described how consumer confidence in Indonesia has developed positively from the first to the second quarters of this year. This latest report broadens the scope to include other countries which are also now enjoying similar trends.

These positive indicators on consumer confidence in Indonesia are also being found in other countries surveyed. The Consumer Confidence Index of Indonesia according to InsightAsia is now showing similar results to that of Malaysia.

Both countries have moved up from a somewhat negative view to just below the neutral level of 100 according to this new index. The rating for Indonesia increased from 83 to 97, and for Malaysia from 83 to 94. Singapore was the most negative country in the first quarter, with an index indicator of only 62, but boosted its consumer confidence by 26 points to 88 in the second quarter, leaving Thailand at the bottom of the consumer confidence list. Thailand has increased its index only marginally, by 6 points from 72 to 78, reflecting the specific local conditions.

JP/Irma

Consumers in Indonesia and Malaysia are similar in their optimism about the future, expecting the economy and their financial well-being to improve.

However there are differences too. Indonesian consumers feel neutral about the current state of the economy, while Malaysians are negative. On the other hand, Malaysians are more positive about their current financial well-being.

Consumers in Singapore are less optimistic about the future than those in Indonesia and Malaysia. Though Singaporeans have become less negative about the economy than they were in the first quarter, they don’t expect recovery in the coming year and also don’t expect their financial well-being to improve.

Even though consumers in Singapore have boosted their confidence since the first quarter, they are still more negative than Indonesian and Malaysian consumers.

Thailand has achieved a smaller increase in consumer confidence than Singapore, Indonesia and Malaysia. Thai consumers overall are not dissatisfied with their financial well-being, but they are very negative about their economy and don’t expect recovery in the near future or the next year.

In addition to the continuing effects of the global recession, Thailand is also clearly suffering from the negative impacts of political instability which are affecting consumer confidence.

Violent demonstrations have received worldwide media attention, quite possibly changing the perspectives of some potential tourists and investors, encouraging a proportion of them to stay away and seek other destinations.

Despite these problems Thailand has increased its Consumer Confidence Index by a modest 6 points compared to the first quarter of 2009, but cannot keep up with the more robust improvements in confidence in Indonesia, Malaysia and Singapore.

China is included in the survey for the first time in the second quarter. Chinese consumers are in a different state of mind than those of the other four countries.

Their Consumer Confidence Index is higher at 123. Consumers are positive about the present state of the economy and its outlook, as well as their financial well-being.

However an important indicator of consumer confidence is the willingness to buy durable consumer goods. Consumers in Indonesia, Malaysia, Singapore and Thailand all indicated in this survey that this is a bad time for such purchases.

This demonstrates that even though confidence is increasing and consumers in these countries have become more optimistic about the future, they are still reluctant to commit to major purchases.

China is the only of the five countries in the survey where consumers feel it is a good time to buy major household items.

Recent economic reports show signs of recovery for the Southeast Asian economies. Analysts refer to public spending and regional and domestic consumer demand as the key drivers behind these trends. Asian consumer confidence is an important indicator of consumer demand and though the recession is not over, the results for the second quarter of the Asian Consumer Confidence Index are encouraging.

The writer is Head of Consumer Confidence Index at InsightAsia Research Group. He can be contacted for more information about the report at consumerconfidence@insightasia.com

Jumping In Java: Indonesia Still A Buy

Forbes.com, Carl Delfeld, Chartwell Advisor, 08.21.09, 01:05 PM EDT

China is not the only emerging market where you can find opportunities. Don't overlook the big archipelago to its south.

Long-time readers know that Indonesia has been a favorite of mine that is often overlooked by even savvy global investors. This year, it is one of the best performers in the world with a growth rate just a bit behind China. Other attributes are its rich natural resources, less reliance on exports relative to its neighbors, and its growing consumer class which fuels 65% of GDP.

Other positives are its appreciating currency and strong banks. Jakarta's banks are among Asia's best-capitalized banks. Then there is political stability. Susilo Bambang Yudhoyono, reelected last month as Indonesia's president, expects faster growth next year and a narrowing of the country's budget deficit alongside a likely increase in inflation.

Indonesia has been less affected by the global slowdown than many, thanks to relatively sturdy domestic consumption, due in part to spending associated with this year's legislative and presidential elections, and a lower dependence on exports. The finance ministry has projected Southeast Asia's largest economy to grow by 4.3% this year. The resilience of the economy helped Yudhoyono cruise to victory with 61% of the vote.

In his 2010 budget announcement, the president said the government was targeting growth of 5% in 2010. He said Indonesia planned to trim its deficit to 1.6% of gross domestic product from an expected 2.5% this year, calling it a "safe and appropriate" level. The International Monetary Fund recently said Indonesia could afford a 2% deficit in 2010 to maintain sufficient fiscal stimulus.

Next year's deficit is to be financed via government bonds and foreign loans from the World Bank, Asian Development Bank, International Development Bank, the president said.