Indonesian Stocks Are Upgraded to ‘Overweight’ at BNP

Bloomberg) -- Indonesian stocks were raised to “overweight” from “neutral” at BNP Paribas SA, which cited record-low interest rates, a resilient economy and better-than- expected earnings outlook. The Jakarta Composite index may rise 16 percent to 2,200 based on a 12-month target, BNP said. PT Bank Danamon Indonesia, PT Astra International, PT Indofood Sukses Makmur and PT Ciputra Property are among its preferred stocks, BNP said. The measure closed at 1,892.84 yesterday, a 40 percent gain this year. BNP’s rating upgrade follows those by JPMorgan Chase & Co. and Credit Suisse Group after a legislative election in April strengthened President Susilo Bambang Yudhoyono’s hold in parliament and raised expectations he will boost economic growth. Southeast Asia’s biggest economy expanded 4.4 percent in the first quarter, the fastest pace in the region.

“The democratic process has become entrenched, which has resulted in a stronger currency and a re-rating in both the bond and equity markets,” BNP’s Jakarta-based analyst Elvira Tjandrawinata wrote in a note today. “The economy is one of the most resilient in the region.” The Indonesian rupiah has risen 7.2 percent this year, helping to ease inflation to a 16-month low in April. The central bank has cut its key interest rate six times since December to 7.25 percent, the lowest since the measure was introduced in July 2005. Slowing inflation supports purchasing power while lower borrowing costs may spur lending. The Jakarta Composite rose 0.2 percent to 1,897.34 as of 11:55 a.m. local time.

Rating Upgrades
JPMorgan, Credit Suisse and Deutsche Bank AG raised their ratings on Indonesia to “overweight” earlier this month. The stock index fell by a record 51 percent last year after the global credit crisis prompted investors to sell assets in high- yielding markets including Indonesia. “Increased risk appetite among investors and a lack of better investment alternatives has driven local investors back” to the equity and bond markets, BNP’s Tjandrawinata said. A “correction” in the stock market may be “shallow” as overseas investors are “still waiting on the sidelines for a dip.” Bank Danamon, partly owned by Temasek Holdings Pte and Deutsche Bank AG, and Astra International, Indonesia’s biggest auto retailer, will benefit from falling interest rates, BNP said. PT Astra Agro Lestari, a palm-oil producer, and PT Indo Tambangraya Megah, a coal miner, are the preferred stocks in the commodity industry, the brokerage said.

Expansion, Contractions
The International Monetary Fund predicts Indonesia’s $433 billion economy will post the only growth this year among Southeast Asia’s five-biggest economies. The IMF last month forecast a 2.5 percent expansion for the nation, zero growth for the Philippines, and contractions for Malaysia, Singapore and Thailand. Morgan Stanley, in a note yesterday, almost doubled its economic growth forecast for Indonesia to 3.7 percent from 1.9 percent, citing gains in commodity prices and diminished political risks. The government expects growth to slow to 4.5 percent this year from 6.1 percent in 2008 as the global recession hampers exports and investments.Still, “given that Indonesia is as politically stable as it has ever been, we expect both domestic and foreign investors to continue growing,” Tjandrawinata said.Yudhoyono will seek re-election in July. He named as his running mate former central bank Governor Boediono, who led the nation’s past six interest rate cuts. A poll conducted by the Indonesia Survey Institute between April 27 and May 3 showed 70 percent of the 2,014 respondents favored the pair, raising optimism economic policies will be maintained should they win.