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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

OCTOBER 1, 1999 VOL. 25 NO. 39

Braving Jakarta's Jitters
Opportunities exist despite the uncertainties


The crisis in East Timor. The jockeying of presidential candidates. The gyrations of the rupiah. With everything going on, why would any investor want to put money into Indonesia? Because, says Sheree Tan of Morley Fund Management in Singapore, the world has too many vested interests in Indonesia to let it go down the drain and the risk-factor means some good stocks are going cheap. She spoke to Asiaweek's Alexandra A. Seno.

The Indonesian market has been very volatile. How are you valuing stocks?
We don't see why we should view Indonesia any differently from any other market. We use the traditional valuation methods like earnings growth and P/E ratios. If you look at the valuations in Indonesia, they are generally relatively cheaper than other markets. People are factoring in a higher risk premium because of the politics. As long as political uncertainty prevails and the situation in East Timor remains pretty volatile, the risk premium is unlikely to go away.

What is your outlook for Indonesia?
Short-term we expect the market to remain pretty volatile. Everybody is waiting to see how the situation in East Timor pans out now that U.N. peace-keeping forces are there. People are also keeping an eye on Aceh since they might try to go the independence route as well. The presidential elections are something else to watch out for. The direction of the currency is yet another worry. Coming to the end [of the year], there is the Y2K issue.


Sheree Tan favors well-managed consumer goods companies and is staying away from the banking sector for now
 
At what level do you see the rupiah by the end of the year?
I think it will probably be around 9,000 [to the U.S. dollar]. As long as the East Timor crisis remains contained in East Timor and we don't get any more big scandals in the country, the rupiah should find some support at this level. [The rupiah closed at 8,275 on Sept. 21.]

What industries and stocks do you like?
If currencies are pretty much going to remain on the slightly weaker side, we would want to be in some U.S.-dollar earners. A miner like Tambang Timah or a paper stock like Indah Kiat would be good scrips. Among the more domestic issues we will stick with the big-cap consumption plays because those have done well. We like tobacco stocks. I like Indofood except that sentiment towards it might not be too good now. Because of strained relations with Indonesia, Australia [unions temporarily] put an embargo on things like wheat. Indofood is very dependent on such imports. Indofood though has good branding. It sells basic foodstuff - everyone has to eat - so we like it.

What about telecom companies?
They are more for weighting purposes because they are big in the index. I have a preference for Indosat at this point because it has come down a lot more in price and it is a dollar-revenue earner, rather than Telkom, which many people worry about because we don't really know how Y2K-compliant it is.

What is your view on the banking sector?
Indonesia is the one market in the region where we are fighting shy of the banking sector. With the Bank Bali scandal, the cost of recapitalization is going to go up. In the industry, it is possible many more skeletons will come out. The only bank we are a bit more comfortable with is Panin Bank, which we own a little of. It doesn't seem to have many problems or need a lot of recapitalization.

How are you playing the domestic consumer market story?
Aside from Indofood, we think the pharmaceutical sector is looking quite attractive. Consumer spending is finally picking up. We like Tempo Scan Pacific and Kalbe Farma. Other sectors are not looking that interesting because of valuations. Cars, for example, just have valuations that are too expensive.

Why invest in Indonesia at all?
The economic picture is improving. Interest rates have come down a long way and inflation is declining. Going into next year, it looks like the overall picture will be better - as long, of course, as East Timor does not blow up and the [presidential] election gets out of the way smoothly. At the end of the day it is the World Bank and the IMF that are running the country because they control the funding. Once Indonesia gets a new government and it looks like they are committed to reforms, people can refocus on fundamentals. Once the political risk diminishes, there should be good upside for the market. There are a lot of [external] vested-interests in Indonesia that are not going to allow it to just go the way of Kosovo. Japan has huge investments there. The international banking community [is owed] a lot of money. It's not in their interest to see the whole thing disappear.

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