Top Indonesia stock picker predicts rally on infrastructure boom

[JAKARTA] Indonesian stocks are poised to climb as much as 11 per cent to record highs by year-end as infrastructure spending revives economic growth, according to the nation's biggest mutual-fund manager.

The forecast from PT Schroder Investment Management Indonesia would put the benchmark Jakarta Composite Index at about 6,011 by December. Schroder favours construction, banking and property stocks, Kiekie Boenawan, a director of investment in Jakarta, said in an interview on Monday.

Indonesian President Joko Widodo plans to spend US$22 billion on infrastructure development in 2015 to help revive Southeast Asia's biggest economy from the weakest expansion in at least five years. The Jakarta Composite Index, which surged 22 per cent last year, has retreated 1.4 per cent since reaching an all-time high on March 6.

"Hopefully we will have a better second half, especially with the government's plan to boost infrastructure spending," said Boenawan, who helps manage 64.6 trillion rupiah (S$6.8 billion). His firm manages the nation's three best-performing equity mutual funds with at least 1 trillion rupiah of assets in the past 12 months, according to data compiled by Bloomberg.

In his first three months in office, Widodo freed up 230 trillion rupiah of budget funds for infrastructure development by scrapping gasoline subsidies and capping government aid on diesel purchases. He plans to boost Indonesia's economic growth to more than 7 per cent during his term in the office, from about 5 per cent last year.

The Jakarta Construction, Property, and Real Estate Index has advanced 5 per cent this year, following a 56 per cent rally in 2014 that paced gains among nine industry groups. State-owned builders PT Pembangunan Perumahan, PT Waskita Karya and PT Wijaya Karya jumped by at least 130 per cent in 2014.

The Schroder Dana Prestasi Plus has returned 22 per cent in the past 12 months, the most among 41 equity funds with more than 1 trillion rupiah, data compiled by Bloomberg show. Schroder has a 2.85 per cent stake in Pembangunan Perumahan, data compiled by Bloomberg show.

Construction companies "offer a higher certainty of growth," Boenawan said.

He's also bullish on shares of the nation's biggest lenders. PT Bank Mandiri, PT Bank Rakyat Indonesia, PT Bank Negara Indonesia, three of the nation's biggest four banks by assets, trade at an average 11.5 times projected earnings for the next 12 months, compared with 15.5 for the Jakarta Composite.

While a weakening rupiah is the biggest risk for investors, the currency's slide to a 16-year low earlier this month may be easing, Boenawan said. The central bank left interest rates unchanged at a policy review last week and pledged to "beef up measures" to stabilise the currency.

"The long-term outlook for Indonesia is still positive," Boenawan said.

BLOOMBERG