Eko Yuliantoro, CEO, Bahana Securities: Interview

Interview: Eko Yuliantoro

How are Indonesian capital markets bracing for the tapering of the US’s quantitative easing programme, and what is your 2014 outlook?

EKO YULIANTORO: With regard to the Federal Reserve’s tapering, I believe that most of the bad news has mostly been priced into the market, in line with 2013’s Rp25trn ($2.5bn) net foreign outflow in the Indonesian equity market. Additionally, based on our analysts’ recent road shows in Singapore, Hong Kong and Japan, most foreign fund managers are currently already underweight in Indonesia. This is encouraging – if international players do not currently hold positions in the market, there is nothing to sell. In my opinion, this means there are limited downsides for the market from current levels. I always feel much more comfortable asking foreign investors to invest in our markets, particularly when the Indonesian rupiah has significantly depreciated. At this stage of the cycle, share prices are 25% cheaper in dollar terms. Furthermore, the countries we visited were not completely risk averse to investing in Indonesia in the future. In fact, in 2014 these overseas fund managers will be looking for encouraging signs to get back into this oversold market. Therefore, we have an index target of 5000 by the end of 2014, backed by some 15% market earnings per share growth.

What is your take on the 2014 elections, and how will politics impact the markets?

YULIANTORO: In the lead up to the 2014 elections, the political climate could heat up. However, we expect cooler heads to maintain stable conditions on the ground. As the final term draw to a close for the current president, Susilo Bambang Yudhoyono, the political situation on the ground remains fluid with no significant domination by one political party. There will be 12 nationwide parties and three local parties competing in the legislative election. Interestingly, we noted that almost 28% of voters in 2009 did not cast their ballots. The legislative election campaign started on January 11, 2014 and will run until April 5, 2014, with the election to be held on April 9 of this year. Meanwhile, the presidential campaign will begin in June 2014, with the election taking place on July 9, 2014.

It will be interesting to observe whether large political parties will form coalitions in order to win. We believe that the new president will be market-friendly and pro-democracy, bringing reforms that should bode well for both growth and the markets.

With elections just around the corner, what sectors and markets should foreign investors be looking into for 2014?

YULIANTORO: Irrespective of the elections, Indonesia’s consumer market is likely to see continued long-term burgeoning growth, given the pace of accelerated urbanisation, rapid growth in modern trades and expanding fast-moving consumer goods sales. The country is the fourth-largest consumer market in Asia – not including Japan – behind China, India and Korea. In 2014 GDP per capita reached $4000, with a population of 253m. In the lead up to the July 2014 elections, we expect consumer staple stocks – such as cigarettes, food and beverage, and pharmaceuticals – to benefit from election spending, resulting in well-supported domestic consumption, despite Bank Indonesia’s current tight monetary policy.

In addition, we are also positive about the potential in the telecommunications sector due to a couple of factors. First, we expect an upsurge in phone usage as a direct result of the 2014 elections as it will be necessary for political players to coordinate political rallies and campaigns. This includes the use of prepaid cards or phone vouchers distributed by political parties to potential grassroots voters. Second, we expect industry consolidation to continue, paving the way for continued rational pricing and improvements in profitability. – January 13, 2014