Indonesian stocks to climb 10% to record high next year, says Citigroup
The benchmark index is heading for its best annual performance in eight years
[JAKARTA] Indonesian stocks are poised to climb 10 per cent to a fresh all-time high next year, supported by government spending and potential interest-rate cuts, according to Citigroup.
The benchmark Jakarta Stock Exchange Composite Index may climb to 9,250, from around 8,363 on Tuesday (Nov 11), as the government’s spending plans boost economic growth, strategists including Helmi Arman and Rohit Garg wrote in a note. Improved liquidity and cheaper funding should spur a banking rebound through stronger loan growth and healthier margins, they said.
Indonesian equities have already advanced about 18 per cent this year, with the benchmark index heading for its best annual performance in eight years. The gauge closed at its latest record high of 8,394.59 on last Friday.
An acceleration in spending plans and rising social subsidies may boost household consumption, the analysts wrote. This will support consumer and retail names such as Sumber Alfaria Trijaya and Mayora Indah, they said. Banks such as Bank Syariah Indonesia, Bank Negara Indonesia and Bank Rakyat Indonesia may also benefit from a lower interest rate environment, the analysts added.
“While structural challenges remain, the combination of better liquidity, a higher fiscal multiplier, and resilient domestic demand should provide a supportive backdrop for Indonesian equities,” they wrote.
While Indonesian stocks have rallied, the rupiah has weakened about 3.5 per cent against the US dollar this year, the worst performer among Asian currencies, amid interest-rate cuts, concerns over central bank independence, and investor unease about the nation’s fiscal outlook.
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The rupiah is likely to remain under pressure in the near term as Bank Indonesia prioritises growth over exchange-rate stability and as the country’s trade balance faces headwinds from the Freeport-McMoRan mine disaster, the Citigroup strategists wrote. BLOOMBERG
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