27/09/2011 (Jakarta Globe) - Local analysts are playing down concerns of Indonesia entering a bear market, reiterating that the country’s economic fundamentals are strong.

The benchmark Jakarta Composite Index closed at a record high of 4,193 on Aug. 1. Since then, though, it has lost 20 percent, meeting the technical definition of a bear market.

Shares have slumped in the past six weeks amid concern that Europe’s debt crisis will worsen and the US economy will slip back into recession. However, analyst Norico Gaman said Indonesia’s fundamental indicators suggested its market should be trading higher.

“I haven’t seen any bearish indication yet,” said Norico, the head researcher at BNI Securities. “The market’s drop has only been caused by negative sentiment, not by fundamental factors.”

He pointed to reports that Indonesia’s economic growth remained stronger than Europe, where growth in nations including Spain and Italy was expected to be less than 1 percent.

The Indonesian government has forecast the economy to grow 6.5 percent this year, up from 6.1 percent last year. The International Monetary Fund last week predicted growth of 6.4 percent for Indonesia, while two weeks ago the Asian Development Bank raised the nation’s growth forecast to 6.6 percent from a 6.4 percent prediction in April.

Analysts blamed the recent sell-off in Indonesia on foreign investors, who have withdrawn in the past few weeks to reduce their risk in emerging markets. In the second quarter, overseas investors were net buyers of Rp 21.4 trillion ($2.4 billion) in shares, according to Indonesia Stock Exchange data.

In August, they were net sellers of Rp 8.5 trillion. In September, investors abroad sold Rp 5.9 trillion more than they bought, as of Friday.

“This is inevitable when our market is dominated by foreign investors. When there are slight problems in the global market, they will quickly pull out,” said Pardomuan Sihombing, the head researcher at Recapital Securities. “We should encourage more locals to invest in the stock market so we don’t need to rely so much on foreign investors.”

Pardomuan said he stood by his prediction that the JCI would end the year at 4,500, which would put its price-to-estimated-earnings ratio at 18. The JCI rose 1.7 percent on Friday to 3,426, a day after losing 8.9 percent — its steepest fall in almost three years.

“Investors are only human,” he said. “Once they start thinking rationally and are more relaxed, they will re-enter the Indonesian market. Investors should have a longer-term view because Indonesia’s macroeconomic indicators are good and corporate performance is growing.”

Betrand Raynaldi, head researcher at eTrading Securities, said he kept his year-end forecast for the JCI at 4,200. Norico predicted a range of 4,050 to 4,450.

Kim Eng Securities was less bullish, lowering its target to 4,050 from 4,250. It said in a note to clients that “although we believe the weakening is temporary, it will take some time to fully recover.”

Some analysts have recommended investors focus on domestic-market oriented companies because consumer spending makes up more than half of Indonesia’s economic activity.

Harry Su, the head researcher at Bahana Securities, suggested buying shares in firms such as Unilever Indonesia, Kalbe Farma and Indofood Sukses Makmur.

“These are stocks that provide basic needs, which means demand for what they provide will remain even when the global economy contracts,” he said. “Over the next 12 months, we are confident the market will grow. It’s time to accumulate, but be careful of volatility.”

Exporters should be avoided, Harry said, because they were more affected by demand in the global economy. Prices for commodities have declined, and two of Indonesia’s biggest exports are crude palm oil and coal.

Astra Agro has already started feeling the slump in orders. Shipments for its palm oil in the eight-months to August have slipped 44 percent from a year earlier to 38,298 tons.

“Don’t be too aggressive entering the market because there is still short-term volatility, at least until the start of October, when companies release their quarterly reports, and after the announcement of third-quarter economic growth,” Norico said.