Indonesia's Still a Darling for Investors Ignoring Earnings

Two thirds of Indonesia’s major companies missed earnings estimates in the first quarter, but that’s done little to stop investors from pouring into this enduring emerging-market darling.

Overseas funds pumped the most money into the market in April for any month since mid-2014, even as Indonesia’s capital region saw its business-friendly governor lose a re-election campaign. The Jakarta Composite Index is little more than 1 percent from the record high reached last week, showing little evidence of concern about commodity-price declines or signs of a slowing in Chinese growth.

What’s giving confidence to foreign money managers from Aberdeen Asset Management Plc to Jupiter Asset Management Ltd. is an expansion in capital spending and sustained economic growth rates of around 5 percent that compare favorably with developed markets. Last year’s cuts in interest rates continue to fuel investment demand, investors say.

“The returns from the index this year are impressive but not out of keeping with other markets in the region,” Ben Surtees, a London-based fund manager at Jupiter Asset Management, wrote in an email. He said his fund will use any weakness “to add to positions or initiate new holdings” as signs of improvement emerge in consumption, automotive and retail sales.

The Jakarta Composite gauge opened 0.1 percent lower to 5,665.11. A government report Friday is forecast to show Indonesia’s gross domestic product rose 5.1 percent in the first quarter from a year before, still below President Joko Widodo’s target of 7 percent for the end of his term in 2019.

Strengthening capital spending should help ensure earnings growth of 13 to 15 percent this year, according to estimates from Aberdeen. By comparison, members of the MSCI Asean Index are projected to post 5 percent gains, according to analysts surveyed by Bloomberg for the same period.

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