Rally in Indonesian stocks attracts mutual funds, foreign investors

Jakarta

INDONESIA'S biggest mutual funds are putting their cash to use.

The rally that's lifted the Jakarta Composite Index more than 16 per cent from its July low has reinvigorated enthusiasm for the market.

Irwanti, a director at PT Schroder Investment Management Indonesia, trimmed cash holdings in the equities fund she manages to the lowest in more than a year, while Bharat Joshi, a Jakarta-based fund manager at Aberdeen Standard Investments, said his cash holdings were at the lowest level since early 2018.

As the nation's benchmark stock gauge flirts with a fresh record - it closed within 2.3 per cent of it on Thursday - even foreign investors have come back to the market. They've invested US$986 million net in local equity funds this year: January had the biggest monthly inflow since April 2017. A drop in oil prices, stronger rupiah amid a more dovish Federal Reserve and possible monetary stimulus from economies such as China have done the trick.

"There has been a sudden turn in sentiment from concerns over tightening cycle in the US to expectation for more stimulus from some economies such as China," said Ms Irwanti, adding that valuations remain attractive despite the recent rebound in Indonesian equities. The Jakarta Composite trades at 15.5 times estimated earnings for the next year, down from 17.5 times last year.

"Companies have been growing, which has not been priced in by investors," Ms Irwanti, who favours consumer companies, banks and commodity stocks, selectively, said. "I expect the market to stay relatively buoyant at least throughout the first quarter." She lowered the January cash holding in the Schroder Dana Prestasi fund to 5.5 per cent from 7.71 per cent in the prior month, that's the lowest since December 2017.

Foreigners continued to buy local equities selectively on Thursday. While PT Bank Rakyat Indonesia saw a net foreign inflow of 204 billion rupiah (S$19.8 million) into its shares, PT Bank Mandiri stocks drew 72 billion rupiah from overseas investors, according to data compiled by Bloomberg.

The reversal in investor sentiment came after a record outflow of foreign money from the domestic stock market last year. For Jemmy Paul, president director at PT Sucorinvest Asset Management, the returning influx of overseas funds will continue to keep equities in demand at least for the next few months until the general and presidential elections in April.

Cash level of Mr Paul's Sucorinvest Equity Fund, which outperformed 96 per cent of its peers in the past five years, fell to 2.1 per cent in January, below the 2.4 per cent average throughout 2018.

According to Aberdeen's Mr Joshi, the drop in oil prices has helped the rupiah rebound from a two-decade low, making it the second-best performing currency in Asia this year. That will also improve margins of Indonesian companies. These positive factors have not been fully recognised by analysts and some investors, he said. Mr Joshi expects corporate earnings to rise by as much as 12 per cent in 2019, compared with 8 per cent last year.

"Indonesian corporate earnings are expected to be better this year compared to last year amid stronger consumer demand and an improvement in margins," Mr Joshi said. "These possible improvements have not been reflected by the recommendations and target price of analysts, so I'm expecting more upgrades on Indonesian stocks coming in the short term." BLOOMBERG