In­vestors see lots of up­side in In­done­sia, but fund man­ager Mark Mo­bius isn’t buy­ing it

In­vestors an­tic­i­pate a boom, though Mark Mo­bius begs to dif­fer “There are cur­rently no tail­winds that can help the out­look”

Bloomberg Businessweek (Europe) - - CONTENTS - −Harry Suhartono and Jonathan Bur­gos

A year ago in In­done­sia, noth­ing was go­ing right. In­fla­tion was up, the cur­rency was slid­ing to a 17-year low, the stock mar­ket was fall­ing, and for­eign in­vestors were in the process of pulling $1.6 bil­lion out of the coun­try. In­done­sians were dis­en­chanted with Pres­i­dent Joko Wi­dodo. He had been elected in 2014 as an out­sider who didn’t be­long to the tra­di­tional power elite in Jakarta and who had big plans to jump-start the econ­omy. In­stead, his first year was marked by con­tra­dic­tory poli­cies, de­lays in launch­ing promised in­fra­struc­ture projects, and an in­abil­ity to con­trol the na­tional leg­is­la­ture, still dom­i­nated by dead dic­ta­tor Suharto’s old party, Golkar. Be­set by party squab­bles, Par­lia­ment man­aged to se­cure pas­sage of only three bills last year, the fewest in at least the past five years, ac­cord­ing to the Jakarta Post.

To­day the Jakarta stock in­dex is the only one in Asia be­sides the Thai ex­change to be in pos­i­tive ter­ri­tory. The bench­mark equity gauge has re­bounded 13 per­cent from its Septem­ber low and is up 1.4 per­cent so far this year. It’s up 5 per­cent when trans­lated into dol­lars, thanks to the strength­en­ing ru­piah. The cen­tral bank is cut­ting in­ter­est rates as in­fla­tion eases, and $100 mil­lion in for­eign funds have re­turned. Af­ter a ter­ri­ble start in 2015, the econ­omy fin­ished the year with a growth spurt of 5 per­cent.

Political de­vel­op­ments are look­ing more fa­vor­able. Wi­dodo has won the sup­port of im­por­tant op­po­si­tion par­ties, in­clud­ing Golkar, which has pledged to ad­vance his agenda, and may re­ceive cab­i­net seats and ex­ert more in­flu­ence in re­turn. The political dé­tente has al­lowed Wi­dodo to re­fo­cus on his pledge to build more ports and rail­ways. The govern­ment has al­lo­cated al­most 300 tril­lion ru­piah ($22 bil­lion) of the bud­get to in­fra­struc­ture.

Jeff rosen­berg Tan, a fund man­ager, sees the na­tion’s eq­ui­ties as shel­tered from the slow­ing Chi­nese econ­omy, thanks to In­done­sia’s in­creas­ingly af­flu­ent pop­u­la­tion of 256 mil­lion. Tan’s Si­mas Satu fund, which fo­cuses on In­done­sian stocks, has beaten 93 per­cent of its peers over the past five years, with a re­turn of 9.7 per­cent, ac­cord­ing to data com­piled by Bloomberg.

One skep­tic is Mark Mo­bius, the in­flu­en­tial fund man­ager with Franklin Tem­ple­ton In­vest­ments. Mo­bius says he isn’t buy­ing or sell­ing In­done­sian stocks. He first wants ev­i­dence that the pres­i­dent’s plans are suc­ceed­ing.

Oth­er­wise, “there are cur­rently no tail­winds that can help the out­look for stocks, since the earn­ings prospects are not good,” he says. About 71 per­cent of com­pa­nies in the in­dex missed earn­ings es­ti­mates in the nine months through Septem­ber 2015.

The big hope is for a con­struc­tion boom trig­gered by Wi­dodo’s pub­lic works, says Ben Sur­tees, a fund man­ager at Jupiter As­set

Man­age­ment. “We’re see­ing more con­tracts awarded and projects get­ting un­der way,” he says. “There’s more com­fort in that part of the econ­omy.”

The bot­tom line In­done­sian eq­ui­ties have moved out of the fi­nan­cial dog­house to be­come in­vestor dar­lings to some.

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