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Aberdeen Bets Indonesia Stocks Will Top Regional Peers Next Year

Bloomberg logoBloomberg 11/20/2020 Harry Suhartono

(Bloomberg) -- Indonesian equities should beat their Southeast Asian peers next year as the region’s battered stock markets recover from the hit they have suffered in 2020 from the coronavirus pandemic, according to Aberdeen Standard Investments.

The Jakarta Composite Index has rebounded some 40% from its March low but is still down about 12% this year. That puts it roughly tied with benchmarks in Singapore and Thailand in the ranking of Asia’s worst performers.

Aberdeen joins a growing chorus of bullish calls on beaten-down Southeast Asian stocks lately. With global investors rotating into economically sensitive value stocks, Indonesia’s rally could gather steam. The country is home to some of the region’s largest financial stocks, and these should help lead gains, followed by shares of materials and automotive companies, said Bharat Joshi, an investment director at Aberdeen in Jakarta.

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“Indonesia has plenty of cyclical names. With animal spirits returning to Asia following the positive vaccine news, Indonesia will likely outperform its neighbors,” Joshi wrote in a text message. His Aberdeen Standard Indonesia Equity Fund is down 4.6% this year, outperforming the local benchmark and 90% of its peers.

chart, histogram: Southeast Asian stocks have underperformed broader region in 2020 © Bloomberg Southeast Asian stocks have underperformed broader region in 2020

Household consumption accounts for more than half of Indonesia’s gross domestic product, which shrank 3.49% in the third quarter, pushing the country into its first recession in more than two decades. But that contraction in the nation’s economy, Southeast Asia’s largest, was smaller than the 5.32% decline it recorded in the previous three months. The third-quarter decline was also less severe than contractions in Indonesia’s export-dependent Southeast Asian neighbors.

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Consumers remain cautious, however, as total virus infections have doubled in the past two months to 480,000. Retail sales in the world’s fourth-most-populous nation fell 8.7% in September, though the decline had narrowed for the fourth-straight month, according to a central bank survey.

Joshi said rising commodity prices as well as the government’s social assistance programs should help improve consumer sentiment, which, in turn, should help boost corporate fundamentals and share prices.

“As we enter 2021, we remain bullish on financials, materials and cyclical stocks which are expected to see revenue and margin improvement following a weak and smaller base in 2020,” he said.

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