Indonesian Stock Index Will Up to 3.500 from 3.300, Mandiri Says

Indonesian stocks, Asia’s most expensive, are set to extend gains by as much as 4.6 percent in 2010 as faster economic growth draws more overseas investors, the nation’s second-largest state-owned fund said.

The Jakarta Composite index may trade in a range from 3,300 to 3,500, said Kenny Soejatman, director of equity investment at PT Mandiri Manajemen Investasi, which manages about $1.9 billion in Jakarta. The benchmark gauge has risen 32 percent this year, the most among Asia’s 10 biggest markets. 

Overseas investors bought a net 4.9 trillion rupiah ($547 million) of Indonesian shares this month, almost a third of the 15.7 trillion rupiah purchased this year. Flows into emerging- market equity funds and high-yield bonds reached a six-week high in the week to Sept. 15, as higher risk appetite sustained a global rally, EPFR Global said last week. 

“The market has been rising largely thanks to liquidity,” Soejatman said in an interview in Jakarta yesterday. “The market has been in a much more forgiving mood about high valuations because the expectation of growth is high.” 

The stock index fell 0.6 percent to 3,343.34 yesterday. Shares gained this year as Bank Indonesia kept its interest rate at a record low to boost growth even as inflation quickened. The central bank left the rate at 6.5 percent for 13 months as President Susilo Bambang Yudhoyono targets an average 6.6 percent annual expansion through the end of his term in 2014. Domestic consumption makes up two-thirds of the economy.

Most Overvalued Sectors

Fund inflows helped push stock values to 35 times reported earnings, the highest level in a year, making Indonesia Asia’s most expensive stock market, data compiled by Bloomberg show. 

“We suggest investors take profits in the most overvalued sectors,” in Indonesia, Credit Suisse Group AG strategists led by Sakthi Siva wrote in a Sept. 16 report. Consumer staples, consumer cyclicals and industrials are the three most overvalued industries, based on a model that compares prices to book values against the return on equity, said Siva, ranked first for equity strategy in Institutional Investor’s 2010 Asian poll. 

Mandiri’s Soejatman said investors should buy consumer stocks that aren’t expensive, such as PT Gudang Garam, the nation’s second-biggest cigarette maker. Gudang Garam is trading at 21 times estimated earnings, compared with 34 times of PT Unilever Indonesia, the nation’s biggest detergent maker. 

PT Astra International, the nation’s largest company by market value, may also rise as its businesses in the automotive, finance, palm oil, and mining industries serve as a “proxy” to the Indonesian economy, he said. The stock is trading at 17 times estimated earnings.

“Consumer discretionary stocks remain attractive because of the consumption story that’s driven by credit expansion,” Soejatman said.Source: Bloomberg