A top-performing fund suddenly gets positive on Indonesia stocks

Bank Indonesia has a $22 billion buffer for defending the rupiah before alarm bells ring about its foreign reserves.

JAKARTA: A top Asean money manager has turned positive on Indonesian equities, once the worst performers in Asia this year.

Samsung Asset Management Co., whose fund has beaten 94 percent of peers over the past five years, raised the country’s shares to overweight from underweight, according to Alan Richardson, investment manager at the company in Hong Kong.

Richardson says Indonesian stocks have already hit bottom and will stabilize from here.

The two-notch upgrade coincides with foreign investors’ return to Indonesia after they pulled more than $8 billion from the stock market in the past year. 

It also came after the central bank raised its benchmark rate for the first time since 2014 and pledged to take stronger measures to maintain currency stability. 

Indonesia’s benchmark stock index has gained 3.4 percent this week, heading for its strongest weekly gain since December 2016, and paring this year’s decline to less than 6 percent.

“Foreign funds are more likely to buy than sell as they get more positive price feedback of the stock market bottoming,” Richardson said. 

“I expect a 15 percent return in dollar terms, based solely on market mean reversion supported by stabilizing capital markets.”

Richardson, who manages the $785 million Samsung Asean Equity Fund, said banking shares such as PT Bank Rakyat Indonesia, PT Bank Mandiri and PT Bank Negara Indonesia, along with consumer goods companies like PT Indofood Sukses Makmur, PT Gudang Garam and PT Ace Hardware Indonesia, are the fund’s top picks.

Nomura Holdings Inc. also raised Indonesia to overweight from underweight. Indonesian equity valuations have become attractive, suggesting a better risk-reward picture even though there might be some modest downside to current consensus earnings estimates, analysts Chetan Seth and Jayant Parasramka wrote in a report.

“With Bank Indonesia’s commitment to stabilize the rupiah via a rate hike, and commitment to keep macroeconomic stability, equity investor confidence should improve and foreign equity outflows should moderate,” Seth and Parasramka wrote. - Bloomberg