(Bloomberg) -- Indonesian property developers and automobile distributors may rise as the central bank cuts interest rates to spur growth in Southeast Asia’s largest economy, according to RCM Asia Pacific Ltd.Policy makers lowered the benchmark lending rate on May 5 to 7.25 percent, a sixth straight monthly reduction. Indonesia has “a lot more room” to reduce borrowing costs, which will boost domestic demand for housing, cars and motorbikes, said Ho Yin Pong.“Previously, the government was constrained by high inflation,” Pong, Hong Kong-based portfolio manager at RCM Asia Pacific, said yesterday in a phone interview. Pong’s Allianz RCM Indonesia Fund has beaten 95 percent of 505 Indonesia funds this year, according to data compiled by Bloomberg.“Now that inflation has come down and the rupiah has strengthened, the central bank will have a lot more leeway to stimulate the economy,” Pong said.
Inflation may slow to below 5 percent in June, central bank Deputy Governor Hartadi Sarwono said May 2, after consumer prices rose 7.3 percent in April, the least in 16 months. Indonesia’s rupiah has gained 6.6 percent this year, the best performance of Asia’s 10 most-traded currencies outside Japan.Indonesia needs to rely on domestic demand to rekindle growth as shipments and investment fall, according to Finance Minister Sri Mulyani Indrawati. Overseas sales from Indonesia dropped 28.8 percent in March from a year earlier to $8.54 billion, following a 32.8 percent decline in February.
More Rate Cuts
The central bank will reduce borrowing costs by at least 50 basis points, or 0.5 percentage point, this year, according to PT Trimegah Securities and PT Bank UOB Buana. PT Kim Eng Securities forecasts the rate will fall another 75 basis points.
Shares of PT Astra International, which sells Toyota Motor Corp.’s cars in the country, have already rallied 80 percent this year, after plunging 61 percent in 2008. The stock is among the fund’s top holdings, according to a March 31 RCM statement.The Jakarta Composite Index has gained 23 percent in the past month, Asia’s second-best performer, driving its annual increase to 33 percent and valuations to 18.1 times earnings. That’s the most expensive since March 2008 and 30 percent more than stocks traded on the MSCI Emerging Markets Index.The measure rose 2.1 percent to 1,835.54 as of 9:51 a.m. Jakarta time, set for its highest since Sept. 26.
Not Cheaper
“Valuations have come up and they’re not necessarily cheaper than other markets,” Mark Mobius, who helps manage $20 billion in emerging-market assets at San Mateo, California-based Templeton Asset Management Ltd., said May 4.Credit Suisse Group raised Indonesia to “overweight” from “neutral,” as the market is the second-most undervalued in the region and “home to some of the cheap cyclical” stocks. Credit Suisse cites Astra, PT Bumi Resources, Indonesia’s biggest coal miner, and PT United Tractors, the nation’s largest heavy equipment seller, as its top picks in a note today.The Jakarta Composite may rally to 2,200, with the so- called fair value earnings forecast to rise 28 percent this year, following a 2 percent decline in 2008, BNP Paribas said in a report distributed by e-mail today. The brokerage had a 12-month index target of 1,400, according to a March report.
Overseas investors may be tempted to increase their shareholdings of Indonesian stocks if President Susilo Bambang Yudhoyono wins a second term in office this year, Pong said.“Regional and global investors want to see continuity,” said Pong. “A lot of money is waiting on the sidelines.”
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