Indonesian shares set to lead region

Rising commodity prices and easing border restrictions will probably fuel economic growth that helps Indonesia’s key stock index lead regional gains next year, analysts predict.

“Indonesia is setting up for a strong 2022 because it is approaching vaccination thresholds that facilitate full re-opening and faster growth momentum,” said Alan Richardson, a fund manager at Samsung Asset Management in Hong Kong.

Easing restrictions as regional coronavirus infections abate along with high prices of the commodities Indonesia exports — palm oil, crude oil and coal — have attracted inflows into the country’s stocks and bonds. That has prompted upgrades of its equity market this month by the likes of Goldman Sachs, while Morgan Stanley and BlackRock also rate it as overweight.

Goldman Sachs predicts 19% growth in earnings per share (EPS) for the Indonesian market next year versus 17% consensus estimates. That is higher than the bank’s 9% EPS growth forecast for the broader MSCI Asia Pacific ex Japan Index.

Adding to Indonesia’s appeal are improving consumer confidence and automotive sales that will also contribute to a “significant” acceleration in economic growth next year, Credit Suisse strategists wrote in a research report last week.

Singapore and Thailand could emerge as strong challengers to Indonesia if both countries continue to reopen borders to tourism even as a new Covid variant emerges. The countries’ banks are also seen as benefiting from reflation.

Singapore’s Straits Times Index is close to erasing its pandemic-triggered losses and Thai stocks were trading near a two-year high before a sharp selloff last Friday in response to news of a “concerning” new Covid variant.

Some $870 million in net foreign funds have flowed into Indonesian equities so far in the fourth quarter from a total of $1.92 billion into Southeast Asian shares excluding Singapore and Vietnam, according to data compiled by Bloomberg, while the country’s local currency government bonds have been the region’s top performers in the second half of this year.

“Indonesia stands out as our preferred means to gain exposure to the region’s reopening and economic recovery — it is a net energy exporter and is starting to reopen after containing the recent wave of Covid-19 contagion, plus its equities are still early in the recovery cycle,” said Ray Farris, chief investment officer for South Asia at Credit Suisse.