Indonesia Stocks May Rise 19%, Credit Suisse Says (Update1)
By Berni Moestafa and Shiyin Chen
June 1 (Bloomberg) — Indonesia’s Jakarta Composite index may rise a further 19 percent this year, based on the outlook for the economy and the valuation of its stocks, Credit Suisse Group AG said.
The brokerage favors companies including PT United Tractors because of “earnings quality and attractive valuations,” analyst Arief Wana said in a report today. Credit Suisse expects the benchmark measure to rise to 2,276, a 19 percent advance from the close on May 29.
Higher commodity prices and lower interest rates helped cushion the impact of the global recession on Southeast Asia’s biggest economy. Private consumption makes up about two-thirds of the economy, which grew 4.4 percent in the first quarter, the fastest pace in the region.
“We believe that private consumption is not only resilient against the recent downturn, but is more importantly showing a trend of bottoming out,” Wana said. “Indonesian corporates are in good shape.”
The stock index has risen 41 percent this year through May 29, the best-performer among Southeast Asian markets. PT Indo Tambangraya Megah and PT Adaro Energy are the preferred coal stocks, Wana said. Crude oil futures advanced 72 percent this year, enhancing the allure of alternative fuels. United Tractors is Indonesia’s biggest heavy equipment seller, which also offers coal mining contracting services.
Interest Rate Cuts
The Indonesian central bank cut its key interest rate six times since December, improving the outlook for loans. PT Bank Rakyat Indonesia, the second-largest by assets, is the top pick among banks, Wana said.
The Jakarta Composite is now valued at 10.9 times next year’s estimate earnings, the lowest in Southeast Asia after Thailand.
Credit Suisse, JPMorgan Chase & Co. and BNP Paribas SA upgraded Indonesia’s rating to “overweight” last month after elections in April strengthened President Susilo Bambang Yudhoyono’s hold in parliament and raised expectations he will boost economic growth. Yudhoyono named Boediono, a former central bank governor, as his running mate for the July presidential elections.
The “market sees him positively,” Wana said in the report, referring to the president. “Considering that he has a dominant position in the recent parliament votes and that this is his last term, we believe that he will be more decisive.”
PT Semen Gresik and PT Indocement Tunggal Prakarsa, Indonesia’s two biggest cement makers, and PT Bumi Resources, Asia’s largest exporter of power-station coal, may benefit from the election theme, he said.