Indonesia Selloff Draws R472.5bn Investment from Allan Gray

The decline in Indonesian assets, intensified by the Iran war, has created a buying opportunity that attracted a South African asset manager overseeing $29 billion.

This year, the Jakarta Composite Index has emerged as the poorest-performing benchmark worldwide, dropping over 35% in dollar terms among the 92 equity indices tracked by Bloomberg. The downturn has been heavily impacted by MSCI’s January warning about the risk of Indonesia being downgraded to frontier-market status due to concerns about its investability and the limited number of available shares.

In a bid to address these issues, authorities have launched several reforms that MSCI will reevaluate in November. However, market sentiment took another blow on Wednesday when S&P Dow Jones Indices suggested the possibility of the country losing its emerging-market status if concerns regarding the equity market persist. As a result, stocks fell by 1.3% amid broader regional market weaknesses.

Investors remain uneasy due to issues concerning fiscal policies, governance, the weakening rupiah, and the unpredictability of policies under President Prabowo Subianto.

Periods of increased volatility and investor uncertainty can create advantageous scenarios for patient, value-focused investors in frontier markets, according to Rory Kutisker-Jacobson, a portfolio manager at Allan Gray, in a note on Tuesday. “Such markets are often overlooked or insufficiently researched by global investors, resulting in considerable pricing inefficiencies and sometimes lucrative prospects.”

The asset manager based in Cape Town made its first investment in Indonesia last month, purchasing shares in PT Indofood Sukses Makmur, a prominent global producer of instant noodles, with plans for additional investments.

“We have intensified our focus on Indonesia and have produced several internal research reports identifying potential opportunities,” stated Kutisker-Jacobson.

“According to our analysis, INDF is trading at just above five times earnings, which we consider a fair price for a leading, cash-generating consumer business,” he elaborated.

The Allan Gray Frontier Markets Equity Fund, co-managed by Kutisker-Jacobson, has recorded nearly a 9% return year-to-date. Over the past quarter, it has established small positions in Mexico, Poland, and Turkey, while decreasing its stake in Seplat Energy Plc, which has performed well this year due to rising oil prices, he noted.

Brent crude prices have fallen following a ceasefire agreement between the US and Iran last month, easing concerns about potential disruptions in shipments through the Strait of Hormuz, a critical energy transit route.

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