Indonesia Stock Index May Add 13%, Credit Suisse Says

(Bloomberg) -- Indonesia’s Jakarta Composite Index, the world’s third-best performer this year, may rise 13 percent by the end of 2010, helped by growth and stability that was last seen more than a decade ago, Credit Suisse Group AG said. The brokerage raised its forecast for the index to 2,685 from 2,276, while retaining an “overweight” rating for the market, according to a report by Credit Suisse analyst Arief Wana. The index climbed 0.9 percent to 2,377.25 on Aug. 28, and fell 1 percent to 2,352.90 as of 11:56 a.m. in Jakarta.“The stronger social-political environment, led by the strong mandate of reelected President Susilo Bambang Yudhoyono, an earnings recovery and a low interest rate environment are likely to spur a rerating of the Indonesian market,” the analyst wrote. “The last period that we saw this was 1992 to 1997.”

The Jakarta Composite has gained 75 percent this year, trailing behind only Peru and Turkey gauges among 89 benchmark indexes tracked by Bloomberg. Yudhoyono’s reelection last month raised expectations the government will maintain policies that helped the economy expand 4 percent in the second quarter and curb inflation to a nine-year low.The index may return to the record 2,830.26 reached in January last year within the next 12 months, PT Batavia Prosperindo Aset Manajemen said earlier this month. Automotive, banks and property stocks may lead gains, said Ruddy Raharjo, head of investment at Batavia, Indonesia’s sixth-best performing fund in the past five years.

‘Pricey’ Valuation
The gains have made valuations “pricey” and the benchmark index will likely stay at around 2,300 and 2,400 for a few months, said Suherman Santikno, head of research at Batavia. The gauge is valued at 30.75 times earnings, compared with the four- year average of 17.31, data compiled by Bloomberg showed.“Businesses are still slow and yet share prices have gone up like crazy,” Santikno said in an interview in Jakarta today.The government forecasts economic growth to slow to 4.3 percent this year from 6.1 percent in 2008 as the global recession reduces demand for export products.
The economy , Southeast Asia’s biggest, may expand by more than 5 percent next year, bolstered by a recovery in the global economy, Finance Minister Sri Mulyani Indrawati said on Aug. 24. Still, inflation may accelerate to more than 5 percent next year partly because of higher demand for goods, Sri Mulyani added.

PT United Tractors, Indonesia’s biggest heavy equipment seller, and PT Astra International, the nation’s biggest auto retailer, are among the brokerage’s top picks in the market. They also favor PT Indofood Sukses Makmur, PT Bank Rakyat Indonesia and PT Perusahaan Gas Negara.Earnings per share may grow 17 percent among the Indonesian companies covered by Credit Suisse, the analyst wrote. The risks to those estimates are “on the upside,” especially for commodity companies, according to the report.