Indonesia Stocks May Fall 8% in Next Two Months, Fortis Says

By Liza Lin. (Bloomberg) -- Indonesian stocks may fall as much as 8 percent in the next two months as recent gains in share prices have been “too fast,” according to the manager of the country’s best-performing equity fund this year.

The Jakarta Composite Index may trade between 2,100 and
2,300 over the next two months, before recovering in October
when President Susilo Bambang Yudhoyono announces his new
Cabinet, said Alvin Pattisahusiwa, head of Indonesian equity at
Fortis Investments, which manages about $225 billion globally.
The gauge rose 0.9 percent to 2,306.55 at 10:02 a.m. local time.

“A correction is likely in the short term but any pullback will likely be a way for investors to come in again,”Pattisahusiwa, who runs four of the five top-performing funds in the country, said in a phone interview from Jakarta. “I’m still positive in the medium term.”

Yudhoyono’s reelection in July raised expectations the government will maintain policies that helped the economy expand 4 percent in the second quarter. The Jakarta Composite has risen 70 percent this year, the world’s fifth-best performer among 90 indexes tracked by Bloomberg. The measure has risen for six straight months, the longest stretch since December 2006.

Fortis Solaris’s 116 percent gain this year makes it the top-performing fund investing in Indonesian stocks.

Earnings Upgrades
The fund manager said he’s more positive about stocks in the medium term because of “earnings upgrades in the near term and rising commodity prices.”. He favors sectors such as infrastructure and commodities. The Jakarta Composite 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 earlier this week. 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 this week by analyst Arief Wana.

The Jakarta Composite now trades at 29.7 times reported earnings, the highest in Southeast Asia, data compiled by Bloomberg showed. The valuation is four times higher than the 6.5 multiple in October, according to the data. The gains have made valuations “pricey” and the benchmark index will likely fluctuate around 2,300 and 2,400 for a few months, said Suherman Santikno, head of research at PT Batavia Prosperindo Aset Manajemen. “Businesses are still slow and yet share prices have gone up like crazy,” Santikno said in an interview in Jakarta on Aug. 31.

The government forecasts economic growth will slow to 4.3 percent this year from 6.1 percent in 2008 as the global recession reduces demand for export products.

Inflation is the biggest risk to Indonesian equities as fiscal spending and loose monetary policy in developed countries fuel a rise in prices in the second half of next year, Fortis’s Pattisahusiwa said. “If interest rate starts to pick up again, it is a negative sentiment to the market as a whole,” he added.