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Even Indonesia are favorite among Asia...but M'sia???
« on: November 30, 2007, 10:52:55 PM »
Indonesia Joins China,India As Asia Favorite   

By Ellen Sheng


HONG KONG (Dow Jones)--Indonesia has moved up the ranks recently to join China, Hong Kong and India as a favorite investment destination among fund managers.

For the second month in a row, Indonesia has come out with a solid overweight weighting, in a monthly poll of fund managers conducted by Dow Jones Newswires. That's up from a slight overweight earlier in the year.

Expectations for further interest rate cuts are piquing interest in the country. Indonesia's declining interest rate has helped fuel domestic demand, proving a boon to makers of durable goods, electronic and household appliances as well as financial services and property companies. The country's natural resources and plantations are also drawing attention amid growing global demand for resources and alternative energy sources such as palm oil.

Although Bank Indonesia kept interest rates unchanged at 8.25% in September amid inflation concerns, further cuts are expected. Citigroup said in a recent research note that further easing measures by the U.S. Federal Reserve could increase the probability of cuts in Indonesia.

Fund managers see the cuts paving the way for more growth. Citigroup forecasts gross domestic product growth in Asia will exceed 8% in the next two years with China and India leading the way, but believes that Indonesia has one of the best chances for GDP growth acceleration.

Indonesia's stock market was among the best performing in Asia in October and again in November. The country's index finished up 16.5% in October. After some weakness mid-November, the Jakarta Stock Exchange Composite is up nearly 3% for the month, and 145% so far in 2007.

But with investors flocking in, high valuations are becoming a concern. With stocks trading at 21.5 times estimated 2007 earnings and 18.9 times forward earnings the market is trading above historical norms, managers at Halbis, the active investment specialist of HSBC Group, point out.

Other fund manager favorites in the region are China, Hong Kong and India. The continued industrialization and growing middle class wealth in China and India remain irresistible long-term investment themes. Valuations in China are high, with stocks frequently trading at 40 to 50 times earnings, but valuations in mainland markets are being boosted by retail investors, who have significant savings but few investment choices. China bulls think that mass of liquidity could lift stock prices longer than expected.

The Hong Kong stock market, meanwhile, has lower prices but is expected to benefit from spillover from Chinese investors. Many institutional fund managers favor the Hong Kong market because of its lower valuations.

Meanwhile, the Philippines stumbled to a slight underweight from slight overweight. The declining interest in the country comes despite some positive factors, including accelerating domestic consumption and expectations for another rate cut by the central bank. In the second quarter, Philippines' Gross Domestic Product rose 7.5% from a year ago - the highest in the past 20 years - driven by domestic consumption. That growth rate slowed somewhat in the third-quarter to a rate of 6.6%, which was within a range expected by economists.

The outlook for the Philippines optimistic as well, according to JP Morgan. "Low real interest rates and high excess liquidity should be conducive for sustained domestic inflows into the stock market," analyst Kelly Lim-Bate said in a recent note. In addition, direct exposure to the slowing U.S. economy is low since exports to the U.S. are now about 20%, down from 39% in 1992.

Asia, however, continues to trail Europe as a fund manager favorite as the region's red hot stock markets have made rising values harder to swallow.

"Asian equity markets are now on similar valuations levels to developed markets. This reflects greater confidence in the ability of Asian economies to grow faster than developed economies," said Tony Dolphin, director of economics and asset allocation at Henderson Global Advisors. However, he adds, "performance will depend on the global economy. If a recession is avoided, Asian stocks are likely to outperform. If a recession occurs, they will fall sharply."

Each month, Dow Jones Newswires surveys fund managers on portfolio weighting recommendations for the succeeding months, with most looking at a 12-month horizon. This latest survey was taken over the past 10 days.

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