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Indonesia headwinds: what managers are saying

Foreign asset managers maintain their overweight on Indonesia amid short-term headwinds facing the market

Felix Lam
Senior portfolio manager, Asia Pacific equities
BNP Paribas Asset Management

2018 has been a challenging year for the Indonesia market.

The Jakarta Stock Exchange Composite Index (JCI) declined by 11.3% year-to-date in USD terms as of 3 August.  

We see Rupiah depreciation as a potential headwind for corporate earnings in the near term and will continue to monitor share prices and investments flow that could potentially stem from political noise around the upcoming presidential election. 

Meanwhile, the potential reverse of coal price is one key risk to be monitored. Nevertheless, we maintain overweight in the market.

Given the volatile external macro environment, our overweight position is more tilted to large caps and domestic consumption-driven corporates.

Overall, the government is more welcoming to foreign investors based on the recent developments in the banking sector.  We are also seeing new investment opportunities in taxi hailing services and fintech emerging in Indonesia. 

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Felix Lam
Senior portfolio manager, Asia Pacific equities
BNP Paribas Asset Management

2018 has been a challenging year for the Indonesia market.

The Jakarta Stock Exchange Composite Index (JCI) declined by 11.3% year-to-date in USD terms as of 3 August.  

We see Rupiah depreciation as a potential headwind for corporate earnings in the near term and will continue to monitor share prices and investments flow that could potentially stem from political noise around the upcoming presidential election. 

Meanwhile, the potential reverse of coal price is one key risk to be monitored. Nevertheless, we maintain overweight in the market.

Given the volatile external macro environment, our overweight position is more tilted to large caps and domestic consumption-driven corporates.

Overall, the government is more welcoming to foreign investors based on the recent developments in the banking sector.  We are also seeing new investment opportunities in taxi hailing services and fintech emerging in Indonesia. 

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Kemal Razindyaswara
Investment analyst, equities
Aberdeen Standard Investments

The market sentiment has been weak.

Rising oil price is posing fiscal risks, while the risk of a weaker rupiah could be felt much later on as the rising import costs of raw materials could give downside surprise towards inflation.  

Although we are constructive on the Indonesian market long-term, there are still plenty of challenges ahead.

Weaker global demand and lower prices for its main commodity – including coal and palm oil – exports mean export revenues are likely to remain low by past standards.

Meanwhile, spending on infrastructure will need to slow if the government is to keep the budget deficit within the 3% of gross domestic product mandatory limit. Tighter monetary policy will weigh on consumer demand in the short term.  

We believe that the core strategy to navigate this market is to remain holding quality company with a strong moat, healthy balance sheet or cash flow generation, and backed with capable management.

The market correction provides opportunity for long-term investors like us to buy quality companies at a more palatable valuation.

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Kenglin Tan
Senior portfolio manager, equities
Manulife Asset Management

We are overweight Indonesia.

Following a prolonged liquidity outflow, we find most opportunities among the small and mid-sized companies in Indonesia. Companies with strong brand and business franchises are trading on very compelling multiples as earnings begin to recover.

More interestingly, the state-owned enterprises are working on improving cost efficiencies by renegotiating contracts and centralise procurement.

The government is proactively managing global market and economic risks while building the foundation for long term sustainable growth.

We see many things moving in the right direction and this will eventually translate into a conducive environment for investing in Indonesia.

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Colin Graham
Chief investment officer, multi asset solutions
Eastspring Investments

After the recent sell off Indonesian equity and foreign exchange have become much more attractive. 

We are now long Indonesian Rupiah to benefit from the cheaper currency and the interest rate differentials.

Indonesian economy is growing well, inflation is under control, credit growth has been anaemic so plenty of room to pick up. 

Given Bank Indonesia has increased its credibility over recent quarters, there is room for credit growth in the economy.

However, the supply chain impact from trade wars and negative sentiment on emerging markets due to dollar strength are some of the headwinds facing that market.  

When compared to recent times, equity valuations have derated slightly, longer term comparisons show still expensive.

 

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Kenglin Tan
Kenglin Tan
142/302 in Equity - Asia Pacific Excluding Japan (Performance over 1 year) Average Total Return: 1.50%