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Picking Indonesia winners is 'harder' for top funds

Top fund managers say picking winners in Indonesia has become harder - but not impossible - as the rupiah extends declines from a 17-year low.
PT Sinarmas Asset Management favours snack maker PT Mayora Indah because of its high proportion of overseas revenues and low foreign debt. The top pick for Samsung Asset Management is PT Sri Rejeki Isman, a supplier to Hennes & Mauritz, because a falling rupiah boosts its dollar earnings and competitiveness.
Picking winners in Indonesia was lot easier when record-low US borrowing costs fueled an almost 300% surge in the Jakarta Composite Index in the six years through 2014 and gross domestic product expanded at an average 5.7%. Now, the benchmark gauge is the world’s worst performer after Peru and Egypt as the Federal Reserve gets closer to raising interest rates and the economy is growing at its slowest pace since 2009.
“We need to focus on companies with low foreign-currency debts and sizable revenue from exports, but that’s not easy to find,” said Jeffrosenberg Tan, at Sinarmas Asset whose Simas Satu Fund has beaten 88% of its peers over the past five years. “Mayora is a perfect choice for us. We are keen to add to holdings if the opportunity arises from a market selloff. It appears the dollar appreciation trend will be here for some time.”
Southeast Asian markets - which were among the biggest beneficiaries of Fed stimulus as investors sought riskier assets - have seen an exodus of foreign funds this year. Overseas money managers have sold a net $991mn of Indonesian shares this quarter, poised to be the biggest net outflows in more than two years. Shortfalls in the country’s current account and the government’s budget, as well as relatively high levels of foreign ownership of its debt, make the country vulnerable to external shocks.
While the Fed on Thursday opted to keep rates pinned near zero for now, Yellen told a press conference that most policy makers still expect to raise rates this year.
Mayora, which sells instant coffee and biscuits across Asia, has bucked the downtrend to become the nation’s best- performing consumer goods stock this year with a 34% jump. The company earns 40% of revenue outside Indonesia and holds no foreign-currency debt. Net income doubled to $32.1mn in the three months ended June from a year earlier.
A slumping rupiah and weaker domestic growth has hurt some of the nation’s biggest stocks. Auto distributor PT Astra International, which has the fifth-largest weighting on the Jakarta Composite, has tumbled 20% this year. The company earns all its revenue from Indonesia and has seen its debt in local currency terms balloon 43% to 47tn rupiah ($3.27bn) in the past 12 months
The rupiah will weaken to 14,600 per dollar by the third quarter of next year, according to economists surveyed by Bloomberg News. The currency last traded at 14,480. The same survey forecast that the economy, Southeast Asia’s largest, will grow 4.8% this year, the slowest since 2009 and well short of the 7% target President Joko Widodo set for his term in office. Textile makers that export most of their output are among the biggest gainers on the benchmark stock gauge this year. Sri Rejeki, known as Sritex, has rallied 107%, the fifth-best performer on the Jakarta Composite.
Second-quarter profit at the Sukoharjo, Central Java-based company surged more than fivefold from a year earlier, compared with an average 18% drop in earnings at companies on the Jakarta Composite. 
The company generates more than 50% of its revenue overseas and has halved its foreign debt this year to $47mn, out of a total $429mn.
Mayora climbed 1.6% to highest close in six weeks yesterday. Sritex gained 0.9%. The Jakarta Composite Index was little changed. PT Eratex Djaja, which shipped nearly 99% of its output abroad, has jumped 102% this year and PT Pan Brothers, a textile company that only serves export markets, has advanced 17%.

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