beyondbrics

Indonesia, a bright spot in this year’s gloomy global equity markets, on Friday clocked up a further 1.1 per cent gain , taking the Jakarta stock exchange index to a new record high of 3,042.

With the economy surging ahead and foreign money pouring in, many observers see stocks climbing further. But some pundits suggest that with a 18 per cent gain already this year, compared with zero for emerging market equities overall, Indonesia’s starry prospects are now in the price.

“Investors see the good news out of Indonesia and they are reacting positively to it,” said Tim Condon, head of research for ING Asia. “There is further upside in prices because of the favorable developments. The Indonesian Rupiah is my top pick among Asian currencies for second half of 2010.”

Investor sentiment dipped across Asian economies in the second quarter, but that trend was bucked in Indonesia, ING bank said in a survey of more than 3,700 major investors released Thursday.

The Jakarta composite index has hit successive all-time highs this week, beating levels last seen in April and those registered pre-crisis. Investors are buying banks, palm oil, construction, property and telecommunication stocks.

As most countries went into recession last year, Indonesia’s economy grew at 4.5 per cent. That momentum has picked up in 2010 and GDP is running at around 6 per cent. Strong monetary policy, political stability and financial reform contributed to a series of recent debt ratings upgrades.

Indonesia has been largely shielded from the global financial shocks because it generates more than two thirds of GDP from domestic trade. And the big question on the minds of many investors is if Indonesia, a largely untapped market of 240m people, can pick up its economic performance a notch or two and close the gap with giant neighbors India and China.

However, a lot is now in the price, in equities. For example, Indonesian equities trade on a price/earnigns ratio of 17.5 times concensus forecast earnings for 2010 – compared with 11.9 times for the average emerging market. China is on 12.9 times.