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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Money & Investing

One of Asia's Best Bets
Despite political worries, Jakarta shows promise


STUART WINCHESTER

has been tracking Jakarta stocks for Thornton Management (Asia) for the past four years. He acknowledges that political risk is increasing in Indonesia, but believes there will be no dramatic changes in leadership. His picks: communications and bank stocks

KOREA AND THAILAND SEEM beaten down by economic woes. The Philippines and Malaysia face concerns over economic overheating and a potential property glut. Stock markets in Singapore, Taiwan and Hong Kong look close to fully valued. Then there's Jakarta, which probably offers one of the region's best investing prospects over the next 12-month period. At least that's what Stuart Winchester says. A fund manager with Thornton Management (Asia), part of the Dresdner Bank group, he has tracked the firm's Indonesian funds for the past four years. Last week he spoke to Asiaweek's Assif Shameen about Jakarta's prospects.

Datastream

Should investors in Indonesia worry about politics?

Overall the Indonesia growth story looks good, but where it could go wrong is on the political side. Social instability can follow a dramatic change in leadership. My bet is that the chances of that happening are minimal, but as a fund manager I have to look at all the options. My feeling is that even if there is a change, there will not be dramatic policy reversals, because whoever replaces Suharto eventually will have to grapple with the question: Why tamper with a system that has produced such good economic results.

Why are you so bullish about the economic fundamentals?

The Indonesian economy hasn't looked this good in quite some time. GDP growth is coming in at or close to 8% per year. The specter of a current account deficit has been a major factor in Asian markets from Korea to Thailand, and Indonesia was included in the bunch. Now you can say that Indonesia, alone among the Asian nations, has a current account deficit that is really not such a concern. The government has cooled the economy so the pressure on the import side is not there. Meanwhile, exports have continued to grow, particularly non-oil ones. In the past ten years, Indonesia has really diversified its export base. The current account deficit is still under 4% of GDP in Indonesia, compared to 5% to 8% in markets like Malaysia and Thailand. Inflation is under control, though I don't really watch the headline 9% number because I believe real inflation is higher. Central bank policy has been to avoid the boom-and-bust cycle and that seems to be working.

How are the stock market fundamentals?

I think stocks in Jakarta are reasonably priced. Most analysts are forecasting 25% earnings growth this year compared to just under 15% last year. Even if earnings growth is only 20% this year, that will still make Indonesia one of the better performing markets in the region. Instead of higher peaks and lower valleys we are finding much steadier growth in earnings. Indonesian stocks are selling, on average, under 16 times earnings. That's cheap compared to other Asian markets, especially given projected earnings growth of 15% to 20% next year. One interesting aspect of the market is the level of new equity being raised each year and the rights issues being offered by existing listed firms. There are many companies raising capital, but that is not problematic. Over the next 12 months I see the Indonesian market outperforming many others in the region.

What sectors do you like?

Unfortunately the Indonesian market does not yet have the kind of depth to really be able to look at sectoral trends. The only place where you can justify a sectoral approach is probably banking and finance. And there are always some stocks or an industry benefiting from the external environment or government policies and you can bunch them together -- like pulp and paper.

What stocks do you like?

Among the larger stocks I like PT Telkom. Despite deregulation and competition, it still looks interesting because of its strong customer base and franchise. I also like Indosat, the overseas telecommunications company, and Bimantara Citra, which is a communications-based conglomerate. I have heard all the talk that its biggest negative is that the owner is President Suharto's son. But the company is well run and going forward -- and the management is professional, dynamic and knows what it is doing. Among the banks, I like Bank Internasional Indonesia or BII, though some might say the stock is a bit expensive. The other big bank I like is BNI and story there is whether it can turn itself into a full service bank and leverage its retail network. The jury is still out on that.


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