Indonesian stocks dally at record peak as investors fear tipping point

Wed Aug 24, 2016 7:18pm EDT
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By Fransiska Nangoy

JAKARTA (Reuters) - Indonesian stocks are on a roll - with 18 percent gains this year and a boost from President Joko Widodo's economic reforms - and yet, investors worry about buying more of a market hitting historic peaks.

The Jakarta Composite Index .JKSE is Asia's second-best performer in dollar terms this year but its winning streak has turned share valuations uncomfortably rich.

The ratio of the average price to 12-month forward earnings for Indonesia's MSCI index .MIID00000PID, or the PE ratio, is 16.44 - well above its historical average of 12.4 and at its highest since 1999.

The rally has come at a time when policymakers are more conservative about growth projections for Southeast Asia's largest economy even though the economy surprised on the upside in the second quarter helped by solid consumption.

Lower fiscal spending, weak corporate earnings and uncertainties over the success of the government's tax amnesty program aimed at improving state revenue are now clouding Indonesia's growth prospects.

"Everybody is nervous because of that, and valuation has peaked for now," said Ivan Chamdani, fund manager with Maybank Asset Management in Jakarta.

"As a relative fund manager, I think it's wise to reduce volatility due to climbing valuation, but no reason yet to raise your cash levels."

The stock market PE ratio is trading well above the first standard deviation of its historical mean, which hints at it being overbought, and above levels at which it reversed trend in 2007, 2013 and 2015.   Continued...

An employee walks in front of an electronic board at the Indonesia Stock Exchange (IDX) in Jakarta, Indonesia August 22, 2016.  REUTERS/Iqro Rinaldi