JAKARTA (TheInsiderStories) – Following the welcome S&P Global Rating upgrade of Indonesia’s status to ‘investment level’ in May, the Jakarta Composite Index (JCI) — the gauge of the Indonesia Stock Exchange (IDX) — broke several records, reading a peak of 6,133 on Monday, Dec. 18, 2017.

The global forecast for Asian markets is upbeat on optimism over U.S. tax reform. European and U.S. markets were firmly higher and Asian bourses figures followed suit.

Director and Head of Equity at PT BNP Paribas Investment Partners Aliyahdin Saugi predicted JCI will grow by 10 per cent next year, to a level of 6,600.

Retail Stocks May Soar Next Year

Signs of recovery of consumer purchasing power this year have appeared slightly after the rebound of global commodities and the price of oil.

According to Bahana Sekuritas, there are several factors supporting the strengthening of people’s purchasing power next year. In the 2018 budget, the government will increase the number of households receiving subsidies from a targeted 1.4 by the end of this year, to about 10 million households. The government has allocated an increase in its social assistance budget of around 33 per cent on an annual basis.

“The increase in subsidies will augment purchasing power by about 8 per cent for every household every month,” predicted analyst Michael Setjoadi. “For the next two years, there will be elections and presidential elections; of course, the money circulating in the community will increase quite remarkably as has happened in the past; in the end it will exert a positive impact on the consumer sector”.

The government of Joko Widodo has allocated a budget to increase the purchasing power of the people by using electronic cards, intended to help disadvantaged families in fulfilling daily dietary needs such as rice, oil, sugar and other basic necessities.

The above factors encourage this subsidiary of PT Bahana Pembinaan Usaha Indonesia (BPUI) to raise the prospect of consumer stocks to ‘Overweight’ from a previous ‘Neutral’, because next year will provide momentum for improvement of purchasing power for the lower middle-class group. On the downside, there is still a risk of weakening of the modern retail sector, as shown by the steady closure of some well-known outlets in recent months.

Bahana recommends ‘buying and liking’ the prospect of three consumer shares, related to the needs of lower middle class society – such as PT Indofood CBP Sukses Makmur Tbk (IDX: ICBP) with a target price of Rp 10,600 per share, PT Ramayana Lestari Sentosa Tbk (IDX: RALS) with a target price of Rp 1,430 per sheets, PT Matahari Department Store Tbk (IDX: LPPF) with a share target price of Rp 12,800 per unit.

Newcomers in the Marketplace

Three companies have listed their shares on the country’s stock market – the Indonesia Stock Exchange (IDX) – towards the end of this year. IDX will likely meet its target of listing 35 companies in 2017.

“There are 33 companies that have listed so far this year, and that figure will rise to 36 by the end of this year,” said Samsul Hidayat, Director of Corporate Assessment at IDX.

The number of new issuers this year is far higher than last year’s listing of only 16 companies. However, in terms of total funds raised through the initial public offering (IPO), the 16 companies listed in 2016 outperformed 33 companies that have listed their shares on the IDX this year.

“Last year, as much as Rp 12 trillion was raised through IPOs by the 16 companies, in which one of the issuers conducted a re-listing,” he said.

He explained that the three companies that will list their shares until the end of this year are expected to boost the total value of listed shares to surpass last year’s value.

He also expressed optimism that more companies will understand the benefits of offering shares to the capital market. Traditionally, companies finance their business development with the help of bank loans or financing from non-bank institutions. Thus, it is expected that more companies will conduct IPOs in the future.

“That’s why we’re pretty excited about this. It is not about the numbers.  Companies have begun to understand how to find the best financing pattern for their respective businesses,” Hidayat said.

The development of our Indonesian capital market can be measured by the amount of market capitalization. Currently, the market cap of all shares listed on the IDX reaches approximately Rp6,700 trillion (US$493 billion).

Corporate Bonds Still Attractive

Despite the outstanding performance of domestic stocks, bond investment is another attractive instrument for investors to profit from the capital market.

The reason is that Indonesia’s bond market is on a positive trend, according to Teddy Oetomo, the Head of Intermediary Business at PT Schroders Investment Management. This is marked by the growth of the Indonesia Composite Bond Index which reached 15.79 per cent year-to-date as of the end of November.

The domestic positive factor still supports the growth of the domestic bond market in 2018. “If inflation is still below 4 per cent, then bonds can still be a favorite instrument in addition to stocks,” he observed.

Looking at the stock market and financial market prospects next year, he believes there is nothing wrong with investors moving part of their investment portfolio to bonds. “At least 30-40 per cent can be diverted because the yield is expected to compete with stocks,” he noted.

Written by Elisa Valenta, Email: elisa.valenta@theinsiderstories.com