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”

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.