Indonesian Stocks at Record High Despite Foreign Outflows
After touching a new all-time record high level last week, analysts are optimistic that Indonesia's benchmark Jakarta Composite Index will surpass the psychological level of 6,000.00 points later this year. Last Friday (25/08) the benchmark index of Indonesia reached 5,915.36 points, a new record, while market capitalization touched IDR 6,481.8 trillion (approx. USD $483.9 billion).
Therefore, it is no surprise the Jakarta Composite Index fell 0.22 percent during the first trading session on Monday (28/08). It was already assumed some profit taking would emerge after touching a new record high level.
Particularly interesting is that the latest record was achieved amid foreign capital outflows. Based on data from the Indonesia Stock Exchange (IDX), foreigners sold IDR 1.69 trillion (approx. USD $127 million) more than they bought last week. So far this year, foreigners only recorded a modest net buy of IDR 1.9 trillion (approx. USD $143 million). Hence, it implies there exists enthusiasm among domestic investors to buy Indonesian stocks.
Reasons why foreign investors are less enthusiastic to purchase Indonesian stocks are the following: (1) valuations of Indonesian stocks are relatively high with a price to earnings ratio of 18 times, (2) the Federal Reserve is assumed to start the unwinding of its massive USD $4.5 trillion balance sheet later this year and implementing another interest rate hike, (3) Indonesian companies' H1-2017 corporate earnings growth at an average of around +15 percent (y/y) was a bit below estimations, and (4) geopolitical turmoil involving the USA and North Korea.
These three aforementioned factors lead to foreign investors' appetite for safe haven assets including (US) state bonds and gold. Moreover, it should be noted that earlier this year foreign capital inflows into Indonesia's capital markets were rather high due to positive assumptions about Indonesia's accelerating economic growth, especially after the investment grade status was obtained from (conservative) credit rating agency Standard & Poor's.
After the latest Bank Indonesia move last week (deciding to cut its key interest rate by 25 basis points to 4.50 percent) Indonesia's property and construction stocks gain attractiveness. However, for a fundamental improvement of these two sectors we may need to wait for one or two years. Still, Indonesian construction and property shares are currently considered being undervalued.
Comparison Stock Market Performance:
| Stock Index |
YtD Change |
PER (x) |
Market Cap (US billion) |
| Dow Jones Industrial Average | +10.38% | 18.65 | 27,057.05 |
| FTSE 100 | +3.62% | 22.24 | 3,496.01 |
| DAX | +5.98% | 15.00 | 2,245.78 |
| Jakarta Composite Index | +11.68% | 17.99 | 483.93 |
| Nikkei | +1.77% | 16.99 | 5,732.20 |
| Hang Seng | +26.58% | 14.01 | 4,859.05 |
| Shanghai | +7.34% | 16.39 | 7,263.10 |
| Kospi | +17.37% | 11.41 | 1,523.69 |
| Straits Times | +13.15% | 11.64 | 553.99 |
Source: Kontan
Inflows/Outflows Regional Stock Markets:
| Country |
Net Buy/ (Net Sell) (USD million) |
| Indonesia | 148.50 |
| Philippines | 489.19 |
| Thailand | (94.68) |
| South Korea | 7,536.40 |
| Taiwan | 8,382.20 |
Source: Kontan
Analyst Picks, Promising Cheap Indonesian Stocks:
| Company |
Return YtD |
PER (x) |
| Astra Agro Lestari | -8.94% | 13.02 |
| Adhi Karya | -2.40% | 18.57 |
| Sentul City | +65.22% | 9.40 |
| Ciputra Development | -8.99% | 17.47 |
| Indah Kiat Pulp & Paper | +206.81% | 3.66 |
| PP London Sumatra Indonesia | -20.69% | 10.00 |
| Panin Financial | +41.86% | 4.54 |
| Pembangunan Perumahan | -26.51% | 15.70 |
| Summarecon Agung | -16.98% | 47.20 |
| Wijaya Karya | -15.68% | 12.18 |
| Waskita Karya | -11.76% | 9.01 |
Source: Kontan
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