Jakarta Stocks to Reach Most Expensive Levels In Three Years: Fund

Indonesian equities are set to climb to their most expensive levels in three years as faster economic growth boosts corporate earnings, according to PT First State Investments Indonesia.

The Jakarta Composite Index may rise to 17 times estimated earnings by the end of 2010 from 14.7 currently, said Laurentia Amica Darmawan, an analyst at First State, a unit of Commonwealth Bank of Australia that manages Indonesia’s fourth- biggest equity fund.

That would be the gauge’s highest price-earnings ratio since December 2007, and the highest among current valuations in Asia after Japan, according to Bloomberg data.

“If people switch their mindset from Europe to Asia there’s a potential for a rerating” of Indonesian stocks, Laurentia said. “We’re overweight on the consumer sector.”

The JCI has risen 14 percent this year, the best performer among major markets in Asia as Bank Indonesia forecasts economic growth will accelerate to 5.6 percent from 4.5 percent last year.

Gains were pared by a 5.9 percent decline on the benchmark index in May on concern the European debt crisis would dent global growth, hurting demand for Indonesian exports.

The nation has a “good” outlook due to its resources and large population, putting the nation in a favorable position to attract investment, Templeton Asset Management chairman Mark Mobius wrote on his blog on June 3.

The country’s population is the world’s fourth largest, after China, India and the United States.

Foreign investors are also returning to Indonesia, buying a net $621.4 million of the nation’s stocks this year, a 17 percent increase from the year-earlier period, according to Bloomberg.

Stocks this year also got an assist as benign inflation helped the central bank keep its benchmark interest rate at a record-low of 6.5 percent to help spur investment and spending.

Domestic consumption accounts for about two-thirds of the economy, and inflation rose by a lower-than-expected 4.16 percent last month.

PT Astra International, the country’s biggest automotive retailer, jumped 33 percent this year after posting a record profit in 2009 and reporting in May that the nation’s total motorcycle sales may climb to a record of more than 6.5 million units this year.

First State’s Laurentia recommended PT Indofood Sukses Makmur, the country’s biggest instant noodle maker, saying its valuation is attractive compared to consumer peers such as cigarette producer PT Gudang Garam and PT Unilever Indonesia.

Among commodity stocks, she prefers PT Adaro Energy, the country’s second-largest coal producer, citing rising output.

Separately, UBS’s wealth management unit said it favored stocks in emerging markets, including Indonesia, because the global economy was not expected to slip into another recession as a result of Europe’s sovereign-debt crisis.

“We don’t see a double dip scenario,” Pu Yonghao, chief Asian investment strategist at UBS Wealth Management, told Bloomberg Television in an interview in Hong Kong.

“After such a correction, valuations look extremely attractive and earnings growth remains solid and on the macro, we don’t have any sovereign-debt issues in Asia,” he said.

Rising domestic consumption will help to sustain Asia’s economic growth, Pu said. The US economy and larger nations in Europe including Germany and France are also “holding up very well,” he said.

A Federal Reserve report on Wednesday showed industrial production in the US rose 1.2 percent in May, the most since August.

Reports released last week also showed surging exports, industrial production and retail sales in China, the world’s fastest-growing major economy.

“Relatively speaking, we still like equities, particularly emerging-market equities,” UBS’s Pu said.



Bloomberg