Jakarta Index Hit 3.000

Jakarta is Asia's best-performing index, up 19 pct this yr
* Consumer stocks, banks lead gains on fund inflows
* Fund manager, analysts see index reaching 3,200 by end-2010

JAKARTA- Indonesia's stock index .JKSE climbed to a record high on Wednesday, as investors buy into banks and consumer firms, attracted by strong economic growth, increasing domestic demand and political stability. The index rose to a high of 3,011.964, up 0.6 percent, to top a previous record hit on May 4 this year, taking gains for the year in Asia's best performing stock market to 19 percent. 

"Strong domestic demand is the main engine for economic growth which is pushing up the index," said Teguh Hartanto, deputy head of research at PT Bahana Securities, who expects the index to reach 3,200 by year-end.




Banks, which provide a popular play on consumer demand, have been the main driver for the rally. "Bank valuations are not cheap but growth and profitability are still high compared to regional peers," Hartanto said.



"Consumer lending growth has already touched 25 percent while overall loan growth is 16 percent. It shows consumer demand is very strong."


Indonesian stocks saw net foreign buying of $1.07 billion this year up to July 19, according to Thomson Reuters data, as funds chase one of Asia's brightest medium-term economic growth prospects.

Analysts say domestic investors have also stepped up buying, adding to inflows into Southeast Asian markets that are looking increasingly attractive compared to slowing growth in China, Europe's debt woes and concerns over the U.S. economic recovery.

Indonesia's economy is expected to grow about 6 percent this year, after proving resilient to the global financial crisis, as increasing affluence in the world's fourth most populous country has led to a surge in domestic sales of cars, phones and cement.

"The potential for Indonesia is positive, it's a lower risk proposition than it was a few years ago. The consumer story here is pretty positive," said Stephen Corry, chief investment officer in Asia for Merrill Lynch Wealth Management.

"Indonesia has positive defensive qualities within the Asian region, as it's less exposed to global trade, and has exposure to China," he said, speaking in Jakarta, also citing the country's low dependence on external financing and thermal coal exports.

Corry said Merrill was also positive on the rupiah currency, and although it sees Asian consumer stocks and banks as a proxy for the region's growth, premium valuations meant the telecom sector could offer more value.

Bank Rakyat Indonesia (BBRI.JK) led gains on Wednesday, up 1.03 percent.

The Jakarta index's biggest firm by market cap, dominant car seller PT Astra International (ASII.JK), has gained 44 percent in 2010, while top state lender PT Bank Mandiri has climbed 30 percent.
The index surged 87 percent in 2009. A stronger rupiah IDR=, up 4.09 percent this year, is also adding to the attractiveness of local currency assets.

"Capital inflows to this region are very hot and I think it will continue...the economic growth is in this region," said Winston Sual, who manages $108 million at Indonesia's top performing fund Panin Dana Maxima.

He predicts the index will reach 3,200 by the end of the year, representing a 26 percent gain from the end of 2009, with the fund's top picks including tyre maker PT Gajah Tunggal (GJTL.JK), toll road operator Jasa Marga (JSMR.JK) and the country's top noodle maker PT Indofood Sukses Makmur (INDF.JK).

Technically, indicators such as the 14-day relative strength index and Bollinger bands show the index is not yet overbought.
While many consumer stocks have outperformed the index, resource firms have not done so well. 

The country's biggest coal miner by output, Bumi Resources (BUMI.JK), is down 29 percent this year on concerns over high debt and corporate governance. Source: Reuters.