Why Indonesia resisted this year’s global sale


Indonesia is among the world’s best-performing emerging markets this year, as global stock investors crowd into a market boosted by commodity exports and a huge domestic consumer base.

The MSCI Indonesia index is up about 12% in dollar terms this year through Thursday, while the benchmark compiler’s broader emerging markets indicator is down 14%, according to Refinitiv data.

Meanwhile, flows from foreign institutional investors into stocks in the Southeast Asian nation reached $5 billion from January to April, according to Goldman Sachs. This is almost double the total for the year 2021 and contrasts with capital outflows through emerging Asia of $47.8 billion.

Global stocks and bonds have been beleaguered this year by a series of challenges, including the Russia-Ukraine war, rapid inflation, tough lockdowns in China and the shift to tighter monetary policy by the Federal Reserve and others. central banks.

Emerging markets that outperformed tended to be heavily exposed to commodities and banks, said Herald van der Linde, head of Asian equity strategy at HSBC..

“Indonesia has both,” he said.

Indonesia is the world’s largest coal exporter and a producer of other key commodities such as oil, gas, nickel and palm oil. He benefited from rising commodity prices and investors pushed up stocks of mining and materials companies.

Shares of coal miner PT Adaro Energy Tbk, for example, have risen almost 50% this year. The company’s subsidiary PT Adaro Minerals Indonesia Tbk has surged since its IPO in January, and its shares are now worth 27 times more than their initial public offering price. Adaro Minerals extracts and markets coking coal, used for the manufacture of iron and steel. Indonesian markets will reopen on Monday after being closed for the holidays from April 29.

Indonesia and other South East Asian markets such as Malaysia are benefiting “from a number of factors which include optimism related to reopening in the region as well as support from a growing consumer base. domestic investors in each country,” said Vijay Vaidyanathan, head of global capital. markets for Southeast Asia at Morgan Stanley.

Mr Vaidyanathan added that these indexes are more focused on value stocks – or stocks that trade at modest valuations relative to measures such as earnings or book value – rather than growth stocks.

Shares of Indonesian banks also rose. These make up a large part of the MSCI index and local equivalents such as the IDX Jakarta Composite Index.

Shares of PT Bank Central Asia Tbk, Indonesia’s largest company by market value, have gained 11% this year, while shares of state-backed microfinance lender PT Bank Rakyat Indonesia (Persero) Tbk increased by 18%.

Investors expect higher interest rates to allow banks to charge more on loans and anticipate an economic recovery as Indonesia eases Covid-19 restrictions, van der Linde said. HSBC. “As the economy picks up, banks will be able to do more business,” he said.

The Asian Development Bank predicts that Indonesia’s gross domestic product will grow 5% this year, compared to a 3.7% increase in GDP last year. Indonesia’s central bank has not started raising policy rates, but market-based interest rates have risen, with one-year government bond yields rising from below 3.7% at the end of last year to nearly 4.4%, according to Refinitiv data.

Indonesia has been spared some of the problems facing China or its more tourism-dependent neighbors in Southeast Asia, such as Thailand, which before the pandemic attracted Chinese visitors, said Kiran Nandra-Koehrer, head of in emerging equity management at Pictet Asset Management. . “It was a good place to be,” Ms. Nandra-Koehrer said.

Chinese stocks have sold off sharply this year as the government has locked down many major cities as part of its zero-Covid policy.

Tourists on a beach in Kuta, Bali.


Photo:

done nagi / Shutterstock

While Indonesia is a tourist destination thanks to places such as the holiday island of Bali, international travel is less important to the overall economy than in Thailand, which has lost many potential tourists from Russia or China. The country’s population of 270 million provides companies with a large domestic consumer market to tap into.

Indonesia’s buoyant markets helped pave the way for the IPO last month of GoTo Group, a local tech giant whose offerings span ride-sharing, e-commerce and financial services. GoTo stock has since fallen about 20% from its IPO price, amid a broader global tech pullback, giving it a market value of around $22 billion.

Elsewhere in emerging markets, the MSCI Turkey index rose 17% in dollar terms, according to Refinitiv. Local investors in the country sought equity safety as the Turkish lira weakened amid runaway inflation, said Jacob Grapengiesser, deputy chief investment officer at Stockholm-based East Capital, a portfolio manager. assets specializing in emerging markets.

The MSCI Brazil index rose 10% in dollar terms, boosted by Brazilian commodity exports and some reallocation in Russian equities, Grapengiesser said.

Write to Dave Sebastian at dave.sebastian@wsj.com

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