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Penny-pinching Indonesians seen imperiling Jakarta stock rebound

[JAKARTA] Jeffrosenberg Tan is seeing warning signs for Indonesia's economy - and the nation's equities rally - on his way to the local mall.

"When it becomes easier to find a parking space at malls on weekend and you've seen more and more discounts at shopping centers, you know that the slowdown is coming," said Mr Tan, whose Simas Satu fund beat 89 per cent of peers over five years with an 8.4 per cent return.

Mr Tan, a fund manager who helps manage about US$700 million of assets at PT Sinarmas Asset Management, has increased cash holdings to the highest levels in six months, concerned that a drop in spending may cut short the gains that sent a gauge of consumer stocks, one of the market's top drivers, to a record this year.

"The market has been getting ahead of the fundamentals and valuations can't be justified," said Mr Tan.

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Indonesia has been one of Southeast Asia's bright spots as overseas investors sought shelter from this year's global turmoil, lured by an accelerating economy.

The Jakarta Composite Index has gained 18 per cent from its September low, sending valuations to records, while the rupiah rose for a fourth month in the longest rally since 2011. Developing-nation stocks entered a bull market in March as the odds of an aggressive US interest-rate policy receded, stoking demand for riskier assets.

The latest data show growth risks still linger even after three interest-rate cuts this year, fueling angst among money managers who anticipated a stronger recovery at the start of the year.

Indonesia's government tax revenue fell in the first quarter, while household spending on groceries - including chocolates, ice cream and biscuits - sank the most since Joko Widodo took power in 2014 in the three months through February.

While Indonesian stocks are on the verge of entering a bull market, the economic figures are damping the initial euphoria that came after Southeast Asia's largest economy expanded at a faster-than-expected 5.04 per cent in the three months to December. 

The benchmark stock index tumbled into a bear market in 2015 and the rupiah sank to a 17-year low as rising US interest rates and an emerging-market rout spurred capital outflows.

"I'm slightly more bearish now than I was at the beginning of this year," said Indra Mawira, an investment manager at Panin Asset Management. "The numbers that we have seen so far has been mixed, which can't justify the earlier optimism that many investors have toward Indonesia."

Spending on groceries dropped almost 10 per cent by volume in the 12-week period through Feb 28, according to data from Kantar WorldPanel's website this month, with food as the most "impacted segment." Shoppers are holding off on consumption as they buy less in volume and cut the number of shopping trips, it said.

First-quarter tax revenue was 4 trillion rupiah (S$410.6 million) lower than the same period in 2015, government data showed this month.

Domestic sales of motorcycles in the first quarter fell 6.3 per cent compared to a year ago, and the number of vehicles sold in Indonesia contracted 5.4 per cent over the same period, according to data published by PT Astra International, the country's largest automotive distributor.

"I've been advising clients to hold cash for now and wait for more clarity," said John Teja, a director at PT Ciptadana Securities. "The first quarter does not look good. The stock rally was relatively too strong if you take into account these facts."

Mark Mobius, executive chairman of Templeton Emerging Markets Group, said he's continuing to search for undervalued companies with good management. "We continue to invest in Indonesia and particularly in the consumer sector," he said by e-mail.

"Also, to get exposure to the consumer sector, the banks are of interest as well." Arief Wana, a Jakarta-based director of Ashmore Group, which oversees US$49 billion of emerging-market assets, also remains bullish. He expects Indonesia's economy to remain strong, predicting the Jakarta stock gauge to climb 15 per cent from current levels to reach 5,500 this year.

The stock index rose 0.9 per cent to 4,865.5 at Monday's close, its second day of gains. The measure is up almost 6 per cent this year, compared with a 1.5 per cent increase for the The MSCI All Country World Index. Indonesia's economy grew at its slowest pace last year since the end of the global financial crisis in 2009. The World Bank last month lowered its 2016 growth forecast for the country to 5.1 per cent from 5.3 per cent.

For Sinarmas's Mr Tan, he's prepared to wait longer for more signs before doing anything. "We are preparing to raise our cash even further and observe more data before committing any long-term position in the market."