Tue, Oct 03, 2017 - Page 11 News List

JCI at record high despite US$2.1 billion Q3 sell-off

‘TRICKY PERIOD’:Slower-than-expected execution of infrastructure projects and a tax amnesty are among the factors that led to the sell-off, a fund manager said

Bloomberg

Yunus Irianto, a 61-year-old shop owner in Jakarta, has been putting more money into his bank account and trading stocks as his business suffers.

“My sales these days are about 40 percent or even half of what they used to be in 2014,” said Irianto, who sells computer hardware and Wi-Fi routers in Mangga Dua, one of the busiest trade districts in the Indonesian capital. “I prefer to put my money in the bank or trade stocks, hoping that I would get more out of it.”

His behavior might explain why the Jakarta Composite Index (JCI) is at a record high, despite the risk-off sentiment that has caused global investors to sour on Asian markets. Foreigners pulled a record US$2.1 billion from Indonesian equities in the third quarter, according to data compiled by Bloomberg.

Local businesses now face tougher scrutiny from tax and customs authorities as part of a government campaign to boost tax revenues, Jakarta-based PT Sinarmas Sekuritas head of strategy Jeffrosenberg Tan said.

That is prompting investors like Irianto to put their money to work in stocks or park it in savings accounts.

Household consumption, which accounts for more than half of the GDP of Southeast Asia’s biggest economy, was weaker than expected in the second quarter. At the same time, the customs authority tightened checks on imports, making it harder or more expensive for some businesses to ship in goods.

PT Sucorinvest Asset Management investment director Jemmy Paul said above-average valuations and a weak external backdrop make the rally prone to reversal.

The JCI trades at 16 times blended forward 12-month earnings, compared with its five-year mean of 14.6 percent, data compiled by Bloomberg showed.

The benchmark gauge gained as much as 0.6 percent to a record high of 5,936.138 yesterday.

“Valuation is getting very expensive and the rally has been so far supported only by blue-chip stocks and local investors,” said Paul, whose Sucorinvest Equity Fund outperformed 97 percent of its peers over the past year.

Slower-than-expected execution of infrastructure projects, external pressure from a potential US Federal Reserve interest rate rise and a tax amnesty program that has not translated into increased property sales, are among the factors that led to overseas funds selling Indonesian equities, said Samsung Asset Management fund manager Alan Richardson said.

“We are entering a tricky period for emerging markets in the fourth quarter with the triple whammy of a Fed hike, balance sheet tapering and US tax reform,” said Richardson, whose top holdings include Indonesian companies such as PT Telekomunikasi Indonesia and PT Bank Central Asia.

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