Indonesia has been among the hardest hit Asian markets after a global sell-off in emerging- market bonds triggered by higher US interest rates and a stronger greenback.
The country’s stock market has also taken a beating. Foreign investors sold a net US$272.8 million of Indonesian stocks between June 18 and June 22, the highest since the week ended April 27, Malaysian Industrial Development Finance Berhad says in its June 25 ASEAN fund flow report.
According to at least one market participant, the stock market correction provides an opportunity for fund managers to buy quality companies at a cheaper valuation.
Kemal Razindyaswara, investment analyst – equities at Aberdeen Standard Investment, believes the negative market sentiment on Indonesia is similar to the wider view on emerging markets.
“Particularly for Indonesia, a combination of weakening rupiah, rising oil price, rising bond yields, risk of politics/election, and the relatively weak consumption recovery has been the general theme of late,” he tells Asia Asset Management.
Mr. Razindyaswara notes that Bank Indonesia, the central bank, has been proactive in addressing the country’s macroeconomic situation, such as by raising its policy rate twice over the last month to stabilise the currency.
“The risk of a weaker rupiah could be felt much later on as the rising import costs of raw materials could give downside surprise towards inflation,” he says.
He is optimistic about the outlook for the country. He says Indonesia is in “a much better shape now” compared to during the time of the so-called taper tantrum in 2013-2014, when it had a current account deficit of over 3% of gross domestic product, compared to the 2.2%-2.4% forecasts for this year.
The taper tantrum refers to the panic selling after then US Federal Reserve Chairman Ben Bernanke hinted in May 2013 of a reduction in monetary stimulus.
Mr. Razindyaswara believes the core strategy to navigate the market is to continue holding quality companies with a “strong moat” to shield long-term profits and market share from competitors.
“The market correction provides opportunity for long-term investors like us to buy quality companies at a more palatable valuation,” he says. “For example, we remain constructive on Bank Central Asia which is a beneficiary of rising rates given its low-cost funding structure as a result of its strong transaction banking franchise.”
According to Mr.Razindyaswara, companies that earn in US dollars will generally benefit, such as exporters and commodities-related companies. These include companies such as United Tractors and Indo Tambangraya Megah.