Worst May Have Passed for Indonesia Markets

The worst may be over for Indonesia’s markets, according to the country’s biggest mutual fund manager.

The rebound in private consumption seen in the second quarter may keep going as the government maintains support to sustain the momentum, says Irwanti, director and portfolio manager at PT Schroder Investment Management Indonesia, Bloomberg reported.

The fund manager, who goes by only one name, expects the rupiah to stabilize, which she says will provide support for foreign investors to return to the country’s stock and bond markets.

Indonesia has suffered in an investor exodus from emerging markets as the Federal Reserve raises interest rates, making the dollar more attractive.

Weak economic growth has also weighed on stocks, bonds and the rupiah, which has depreciated 7.9% this year, making it the second-worst performing currency in Asia after the Indian rupee. Foreign investors have sold $6.6 billion of Indonesia’s equities in the past 12 months and $2.3 billion of its government bonds in the second quarter.

“We are expecting better macroeconomic conditions,” Irwanti, 36, said in an interview.

Irwanti, a graduate of the University of New South Wales in Sydney, says she’s buying debt for starters as a way to express her optimism. She expects stocks to start rising a little later.

“We continue to accumulate bonds when the yield of 10-year debt hits 8%,” she said. “Equities can follow the gains in bonds, but that is probably something that will happen in the fourth quarter of 2018 or the first half of next year.”

Indonesia’s 10-year bond currently yields slightly more than the 8% level that Irwanti mentioned. The earnings yield of the Jakarta Composite Index is about 5%.

Private consumption, which accounts for more than half the output of Southeast Asia’s biggest economy, saw the fastest quarterly expansion in four years in the second quarter.

The fund manager says consumer stocks, which account for about 20% of the Jakarta Composite Index, should benefit if this trend continues.

Retailers and food companies will also benefit from the consumer spending recovery, she said.

But despite her positive assessment of equities, Irwanti says the Jakarta Composite Index will only rise about 3% to 5% from its current level this year as the market started 2018 at an elevated valuation.