Indonesia Stocks May Rise 20% by End-2011 on Earnings, Credit Suisse Says

Indonesian stocks may rise 20 percent by the end of 2011 as increased earnings, a potential upgrade in the country’s debt rating and a Cabinet reshuffle boost investor confidence, according to Credit Suisse Group AG. 

The benchmark Jakarta Composite Index may advance to 4,400 next year, Credit Suisse analyst Arief Wana said in a report today. He advised investors to focus on “underperformers and valuations,” citing PT Indosat and PT Adaro Energy. The index climbed 0.1 percent to 3,677.90 yesterday. 

“Structural improvement in return on equity is one of our main reasons,” Wana said. Better profit margins and “asset turnover” will remain the “key drivers” boosting the return on equity of shares on the benchmark index by 150 basis points next year, he said, without giving the target rate of return. 

The stock index has risen 45 percent this year, the best performer among Asia’s 10 biggest markets. Shares climbed as the nation’s central bank kept its benchmark interest rate at a record low of 6.5 percent this year, supporting domestic consumption that accounts for about two-thirds of the economy. The International Monetary Fund forecasts economic growth to accelerate to 6 percent this year from 4.5 percent in 2009. 

Standard & Poor’s raised Indonesia’s sovereign credit rating to a 12-year high of BB from BB- on March 12, with a positive outlook. S&P and Moody’s Investors Service both rank Indonesia two levels below investment grade, while Fitch Ratings on Jan. 25 increased it to one step below investment. Moody’s raised in June Indonesia’s credit rating outlook to positive. 

‘May Falter’

The stock market rally may falter this year as foreign purchases of Indonesian equities slow, Budi Hikmat, a director at PT Bahana TCW Investment Management, which manages about $1.8 billion, said Nov. 3, recommending investors “tone down expectations on future gains.” 

Near-zero interest rates in the U.S. and Japan spurred funds to seek higher returns in emerging markets, helping to boost Indonesian stocks. Foreign net purchases of Indonesian shares jumped to 6 trillion rupiah ($672 million) in September, the biggest monthly net purchase this year, before dropping to 322 billion rupiah in October, according to data compiled by Bloomberg. 

Indosat, Indonesia’s second-largest telephone company has risen 22 percent this year, underperforming the benchmark index’s 45 percent gain. Adaro, the nation’s second-largest coal producer, has advanced 42 percent this year. 

President Susilo Bambang Yudhoyono hasn’t discussed any plans for a Cabinet reshuffle with his Democrat party, state news agency Antara reported on its website Oct. 31, citing Saan Mustofa, deputy secretary general at the party’s board of executives. Source: Bloomberg