An increasingly uncertain economic outlook in the United States and Europe will have relatively little effect on Indonesia's robust fundamentals, instead offering investors a good opportunity to buy equities in Southeast Asia's largest economy, a Schroders fund manager said.
Indonesia's main stock market index , Southeast Asia's best performing equity market, has gained around 4 percent this year.
In line with other volatile equity markets, however, Jakarta stocks fell more than 6 percent on Tuesday, as investors worried about the debt crises in the United States and Europe.
"The Indonesian economy should be relatively less impacted but the stock market should be very much correlated with the volatility of the global stock markets," Kiekie Boenawan, head of investment at Schroder Investment Management Indonesia (SIMI), said in an email late on Tuesday.
"It should present a good opportunity to accumulate Indonesian equities as fundamentals are not impacted as much -- relative to other developed economies."
Asian stocks clawed back some lost ground on Wednesday, following a rebound in U.S. shares, after the Federal Reserve made an unprecedented pledge to keep interest rates near zero for at least two years, stemming a global equity rout for the time being.
But economic growth in the archipelago of 17,000 islands is expected to be 6.6 percent this year, and growing slightly higher in 2012.
"The impact on the Indonesian economy will be relatively less due to Indonesia's low exposure to exports and also due to the low leverage of the economy," added Boenawan. "Most companies are experiencing net cash or very little debt.
"Assuming a 6 percent real growth and an average of 5 percent inflation, we could reasonably expect the stock market to deliver around 13 percent growth in return and dividends next year from this level."
TOP HOLDINGS The Jakarta-based fund company was established in 1991. At the end of July, SIMI had $6.9 billion under management, with around 75-80 percent invested in equities and the remaining in fixed income assets.
Investment decisions in each SIMI fund is based upon contributions and ideas from the investment team of analysts and portfolio managers.
Astra International , Indonesia's biggest listed firm and main vehicle distributor, Bank Mandiri and Bumi Resources are among the main holdings of its equity funds, according to data on its website.
Property stocks are a top pick for Schroders' Indonesian funds, due to the rising levels of middle-income earners and low interest rates, Boenawan said.
Indonesia's central bank held its benchmark overnight policy rate at 6.75 percent on Tuesday for a sixth straight month after July inflation slowed to a 14-month low.
"Property sectors have also been experiencing a surge in demand and prices mainly on the back of rising middle income affluence, low interest rate, and rising direct investments in Indonesia," Boenawan said.
Indonesia expanded at a robust 6.5 percent on year in the second quarter of 2011, at a time when the outlook for the global economy is increasingly uncertain.
"Despite the rising demand and prices in the real physical market, the prices of the property stocks have yet to fully reflect its fundamentals," he added.
Least favoured Indonesian equities for Schroders include telecommunication firms due to a crowded business space, and cement companies.
"For telecommunication, the industry is crowded and has been experiencing fierce price competition since the last 3 years," Boenawan said.
"For cements, although demand is quite robust especially given the rising property prices, the industry has not been able to raise prices further without inviting competition from imported clinkers." Source: Economic Times
Indonesia's main stock market index , Southeast Asia's best performing equity market, has gained around 4 percent this year.
In line with other volatile equity markets, however, Jakarta stocks fell more than 6 percent on Tuesday, as investors worried about the debt crises in the United States and Europe.
"The Indonesian economy should be relatively less impacted but the stock market should be very much correlated with the volatility of the global stock markets," Kiekie Boenawan, head of investment at Schroder Investment Management Indonesia (SIMI), said in an email late on Tuesday.
"It should present a good opportunity to accumulate Indonesian equities as fundamentals are not impacted as much -- relative to other developed economies."
Asian stocks clawed back some lost ground on Wednesday, following a rebound in U.S. shares, after the Federal Reserve made an unprecedented pledge to keep interest rates near zero for at least two years, stemming a global equity rout for the time being.
But economic growth in the archipelago of 17,000 islands is expected to be 6.6 percent this year, and growing slightly higher in 2012.
"The impact on the Indonesian economy will be relatively less due to Indonesia's low exposure to exports and also due to the low leverage of the economy," added Boenawan. "Most companies are experiencing net cash or very little debt.
"Assuming a 6 percent real growth and an average of 5 percent inflation, we could reasonably expect the stock market to deliver around 13 percent growth in return and dividends next year from this level."
TOP HOLDINGS The Jakarta-based fund company was established in 1991. At the end of July, SIMI had $6.9 billion under management, with around 75-80 percent invested in equities and the remaining in fixed income assets.
Investment decisions in each SIMI fund is based upon contributions and ideas from the investment team of analysts and portfolio managers.
Astra International , Indonesia's biggest listed firm and main vehicle distributor, Bank Mandiri and Bumi Resources are among the main holdings of its equity funds, according to data on its website.
Property stocks are a top pick for Schroders' Indonesian funds, due to the rising levels of middle-income earners and low interest rates, Boenawan said.
Indonesia's central bank held its benchmark overnight policy rate at 6.75 percent on Tuesday for a sixth straight month after July inflation slowed to a 14-month low.
"Property sectors have also been experiencing a surge in demand and prices mainly on the back of rising middle income affluence, low interest rate, and rising direct investments in Indonesia," Boenawan said.
Indonesia expanded at a robust 6.5 percent on year in the second quarter of 2011, at a time when the outlook for the global economy is increasingly uncertain.
"Despite the rising demand and prices in the real physical market, the prices of the property stocks have yet to fully reflect its fundamentals," he added.
Least favoured Indonesian equities for Schroders include telecommunication firms due to a crowded business space, and cement companies.
"For telecommunication, the industry is crowded and has been experiencing fierce price competition since the last 3 years," Boenawan said.
"For cements, although demand is quite robust especially given the rising property prices, the industry has not been able to raise prices further without inviting competition from imported clinkers." Source: Economic Times
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