Goldman Sachs Group raised its recommendation on Indonesian stocks, citing the Southeast Asian nation’s fundamentals, easing policy concerns and its lagging performance to other regional markets.
“We are positive on Indonesia’s long-term growth potential — demographic trends, urbanization, capital formation, financial deepening — and we see its underperformance against its Southeast Asian peers as an attractive opportunity to re-engage,” said a group of Goldman analysts led by Timothy Moe, in a report released in Jakarta on Wednesday.
The US investment bank lifted its rating to overweight from marketweight, meaning it suggests that investors own more shares in Indonesia than what is currently allocated in a model investment portfolio.
The MSCI Index for Indonesia has risen 2.7 percent so far this year, lagging the 16 percent gain of the Asean index this year in dollar-denomination terms.
In local terms, the benchmark Jakarta Composite Index closed on Friday at a record high of 4,257.00, and its gain this year stands at 11 percent. That lags the 25 percent advance for Thailand’s SET index and the 16 percent rise for Singapore’s Straits Times index.
Goldman says it favors Indonesian policy makers’ efforts to address the issues of excess domestic demand and rising current-account deficit by maintaining a stable rupiah and tightening consumer credit facilities. “We believe government actions will help extend the cycle and reduce unnecessary macro volatility,” Goldman said in the report.
In June, Bank Indonesia raised the minimum on down payment plans for property, cars and motorcycles to curb excessive lending.
In terms of corporate earnings growth Goldman said that Indonesia has built a solid record of delivering “mid-teens” earnings growth, an average of 16 percent from 2010 to this year’s forecast. It has also high return on equity at 26 percent in the past three years, “matching the strong underlying economic growth.” Goldman predicts the economy growing 6 percent this year, slowing from last year’s 6.5 percent expansion but faster than many other Asian economies.
Bank Rakyat Indonesia, the second-largest bank by asset, was among Goldman’s citing the lender’s low price-to-earnings ratio of 9.6 for 2013. Bank Rakyat, which focuses on lending to farmers, has gained 5.1 percent this year.
In other markets it upgraded South Korean and Indian stocks while reducing Australian and Malaysian equities.