It certainly feels like we are in the midst of a consumer frenzy. Consumer stocks were in general well bid yesterday. Cigarette maker Gudang Garam (GGRM IJ) and our favorite biskuit maker Mayora (MYOR IJ) are at record highs. Both names are our top picks in the consumer sector.
High end retailer Mitra Adi (MAPI IJ) +5.3%, media company Surya Citra (SCMA IJ) +4.4%. Suzuki and Nissan car distributor Indomobil (IMAS IJ) +24%, trading limit up in the last three trading sessions. Granted most of these stocks are not very liquid, but still highlight strong interest in Indo consumer space.
With the recent strong performance, the question is whether it is time to trim domestic stocks. Nick Cashmore does not think so. Central bank intervention has its limits and Indonesia’s high nominal interest rate structure will prove a strong lure, driving down long bond yields. Our chief economist Eric Fishwick has changed his assumption of US rates and now expects interest rates will not increase before mid 2012. This makes Indo high interest rates even more attractive.
In his latest GREED & fear, Chris Wood noted that it is interesting to hear from an Asian perspective that there is now a growing interest investing in rupiah fixed income products given the relatively attractive yields, the recent stability of the rupiah, and Indonesia’s strong fiscal position.
Japanese investment trusts have already invested Y73.7bn in Indonesian bonds. But more flows are likely to follow given that Japanese investment trusts have already invested Y1.84tn in Brazilian bonds where the attraction is again high yields and a strong currency. Such flows can only be a positive for maintaining momentum behind the Indonesian story.
Indonesia’s new central bank governor Darmin Nasution has vowed to lower inflation. A stronger rupiah would certainly help. A sustained rise in the value of the rupiah would improve consumer purchasing power and boost living standards.
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