Sunday, September 29, 2013

Indonesian Funds Dump Stocks Tumbling Most Amid Global Rally

Indonesia’s biggest mutual funds are liquidating stocks traded in Jakarta as local interest rates rise and growth slows, sending the nation’s benchmark equity index to the biggest drop among major markets this quarter.


Equity funds managed by local units of Schroders Plc (SDR), Manulife Asset Management and PT Bank Mandiri raised their average cash holdings to 12.8 percent at the end of August from 10.3 percent in June and 6.9 percent in March, data compiled by Bloomberg show.

The Jakarta Composite Index’s (JCI) 8 percent drop this quarter left it valued at 18 times reported earnings, a 56 percent premium over the MSCI Emerging Markets Index.Indonesian policy makers raised borrowing costs four times since June, sacrificing economic growth to help stem the fastest inflation since 2009 and the rupiah’s slide to a four-year low.

While PT Danareksa Sekuritas says higher cash holdings is a contrarian indicator that stocks in Southeast Asia’s largest economy will rally, PT Nomura Indonesia says it shows investors with the most at stake are bracing for more losses.

Businesses in Indonesia are facing a number of challenges, from rising costs to interest rates and now the weaker rupiah,”Jeffrosenberg Tan, a money manager at PT Sinarmas Asset Management, which oversees about $600 million, said by phone from Jakarta. “I’m happy with my cash holdings.”

The Jakarta gauge rose 0.7 percent at 11:30 a.m. local time, bound for steepest rise since Sept. 19, led by gains in PT Astra International which rose 1.6 percent and a 5.4 percent jump in PT Indofood CBP Sukses Makmur.

Biggest Loser

PT Gudang Garam (GGRM), a Kediri-based tobacco company, and PT Charoen Pokphand Indonesia, a producer of animal feed, led the Jakarta index to the biggest decline among benchmark equity gauges in the world’s 25 biggest equity markets since June, data compiled by Bloomberg show.

The benchmark measure for Indonesia’s $385 billion equity market is heading for its biggest quarterly drop in two years. The MSCI All-Country World Index has increased 8.2 percent since June, while China’s Shanghai Composite Index (SHCOMP) rose 8.9 percent and Brazil’s Ibovespa climbed 14 percent. Russia’s Micex gained 11 percent and India’s S&P BSE Sensex added 2.6 percent.

Cash figures at the end of August were compiled from fact sheets for the largest equity mutual funds at Mandiri, Schroders and Manulife, which are all based in Jakarta.

The 10 funds, which have total assets of about $2.5 billion, are required to invest at least 80 percent of their holdings in stocks. Mandiri, which oversees about $1.7 billion firmwide, will keep cash holdings at about 10 percent even after the U.S. Federal Reserve’s surprise decision to maintain monetary stimulus on Sept. 18 fueled a 4.8 percent gain in the Jakarta gauge last week, according to Chief Investment Officer Priyo Santoso.

Deficit Concern

While Schroders may trim its cash “a bit,” the firm isn’t fully invested in stocks, Michael Tjoajadi, the chief executive officer at PT Schroders Indonesia, which oversees about $4.4 billion, said by phone on Sept. 23.

Alvin Pattisahusiwa, director of investment at PT Manulife Aset Manajemen Indonesia, which oversees about $3.8 billion, declined to comment.

“There will be an emerging-market rally following the euphoria through maybe the end of the month, but after that investors will look at the fundamentals again,” Santoso said by phone from Jakarta on Sept. 20. “For Indonesia, the issue is still the current-account deficit.”

The current-account gap in Indonesia swelled to a record $9.8 billion, or about 4.4 percent of gross domestic product, in the second quarter, Bank Indonesia data showed on Aug. 16.

That compares with an estimated surplus of about 1 percent of GDP for emerging markets as a group this year, according to the Washington-based International Monetary Fund.

Foreign Outflows

The rupiah has depreciated more than 13 percent against the dollar this quarter, the worst performance among 23 emerging-market currencies tracked by Bloomberg, as foreign-exchange reserves fell to the lowest level in almost three years in July.

International investors sold a net $714 million of Indonesian shares this quarter, compared with $107 million of inflows into India and $9.6 billion into South Korea, according to exchange data compiled by Bloomberg.

Indonesia’s equity gauge is valued at an 8 percent premium versus India’s Sensex and is 18 percent more expensive than South Korea’s Kospi gauge, which trades at 15 times reported earnings. Higher cash holdings suggest reduced selling pressure in the stock market, which is a bullish signal, according to Chandra Pasaribu, the head of equity research at Danareksa.

“Now is a good time to be opportunistic and look for value,” Pasaribu said by phone from Jakarta on Sept. 18.

Fed Rally

Indonesia’s equity index advanced 4.7 percent on Sept. 19 after the Fed said it will maintain $85 billion of monthly debt purchases.

The Jakarta gauge has climbed 11 percent from this year’s low on Aug. 27 and is up 286 percent since the U.S. central bank began its first round of bond-buying in 2008. Fed stimulus isn’t enough to solve Indonesia’s economic challenges, Mark Konyn, the Hong Kong-based chief executive officer of Cathay Conning Asset Management, said in a Sept. 19 interview on Bloomberg Television.

The weaker rupiah and rising fuel prices pushed inflation to 8.79 percent last month, the highest level since January 2009. The central bank has raised its benchmark interest rate by 1.5 percentage points to 7.25 percent since June, even as the nation’s economic growth decelerated for a fourth-straight quarter to 5.8 percent, the weakest pace in almost three years.

“Cash is your best defense,” said Wilianto Ie, the head of equity research and strategy at Nomura in Jakarta. “Fund managers normally do this when they face uncertainties in the market or they think that a crisis is coming.”

Indonesian markets may become vulnerable when the Fed begins paring its stimulus, said Schroders’ Tjoajadi. Policy makers may make a “small” cut to bond purchases in October, Fed Bank of St. Louis President James Bullard said in a Sept. 20 interview on Bloomberg Television.

“Tapering will happen, that’s a certainty,” Tjoajadi said. “There will be consequences to the financial markets. So now it’s about how can we minimize the impact.”

bloomberg.com

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