Next Stop 4,800? Big Year Seen for Stock Market
The Jakarta Composite Index could soar to the 4,800 level next year on the back of strong corporate earnings growth and investor confidence in the country’s overall economy, Nomura Indonesia said in an equity report released on Wednesday.
If that were to happen it would mean a 26.5 percent rise for the benchmark index from Wednesday’s close of 3,793.26. The JCI has gained only 2.4 so far this year, a far cry from its 46.13 percent jump in 2010.
Nomura, the local unit of Japan’s largest brokerage, said that despite the risks from overseas, Indonesia, which benefits from “rising rural incomes and solid domestic fundamental,” should extend its growth momentum into next year.
The report said the economy was likely to continue to benefit from “a falling sovereign risk profile, strong domestic consumption and low reliance on exports.”
“Indonesia is unlikely to escape any sharp sell-offs or risk of trade in the global market, but the strong underlying fundamentals should eventually prevail,” it said. “Any sell-off is likely to prove to be a significant buying opportunity to ride the solid medium-term growth.
“We expect market volatility will be reduced going forward as investors have learned from the 2008 sell-off and its strong recovery aftermath.
The report acknowledged “a strong tendency for investors to remain defensive during this turbulent time.” However, Nomura’s research team “believes the real payoff should come from investing in companies with a strong underlying business which also appear well positioned for growth.”
The country’s strong economic outlook supports a view for 19.7 percent earnings growth for a variety of listed companies in 2012, the report said.
Nomura listed its top stock picks as heavy equipment distributor United Tractors, state lenders Bank Rakyat Indonesia and Bank Mandiri, state gas distributor Perusahaan Gas Negara, state toll road operator Jasa Marga, state cement maker Semen Gresik, private coal miner Harum Energy and property developer Ciputra Development.
Among stocks under its coverage, Nomura “sees BRI as offering the most attractive earnings and share price potential upside in a declining interest rate environment in Indonesia, as its net interest margins appear to be most insulated from competition, while a rising contribution of high-margin micro-credit in its loan portfolio has widened NIMs in the past two quarters.”
Regarding Mandiri, it said the bank “is not a beneficiary of falling rates, but we believe the bank’s strong non-interest income growth should offset NIM pressure, while there is still significant loan recovery potential from the bank’s legacy non-performing loans.”
Indonesia’s central bank has lowered its key interest rate by 75 basis points this year in two cuts, taking down the benchmark rate to 6 percent, the lowest level since it was introduced in July 2005.
Nomura said PGN was “upbeat on the gas distribution sector, partly due to favorable government policies, robust demand growth underpinned by the transition to clean and low-cost energy and stable margins.”
However, Nomura also cited some key risks. It pointed to “a sharp correction in commodity prices that would hurt incomes in Indonesia’s resource-rich regions” and “a sharp rupiah depreciation that could trigger inflation, and a liquidity crunch that could de-couple market price action from the strong underlying fundamentals.”
Wilianto Ie, head of equity research at Nomura Indonesia, led the research team.
Here’s a brief predictions on Indonesia’s stock market. Do you keen to invest in stock market? What do you think is the best investment at the current economy situation? Stocks? Gold? Oil? Bond? Share your thoughts with us.