Indonesia's P/E Ratio Relatively Low Compared to Regional Economies
Indonesian newspaper Investor Daily reported that stocks at the Indonesia Stock Exchange are still relatively cheap compared to regional stock indices. Currently, the price to earnings ratio (P/E ratio) of Indonesia's main index is about 18. In contrast, South Korea's Kospi index amounts to 34, Japan's Nikkei 28, Taiwan's Taiex 23, and Philippines' PSE stands at 23 times earnings. As the Indonesian economy as well as its companies' profit figures are projected to grow, the P/E is expected to fall to 16 this year.
Various international and national institutions estimate that Indonesia's economy will grow between 6.0 and 6.5 percent in 2013. Profit of Indonesian companies this year is projected to increase 20 to 22 percent. In recent years, many Indonesian companies that rely on domestic consumption have posted impressive profit figures due to the country's expanding economy (and burgeoning population), whereas companies engaged in commodities have seen their profits fall amid a drastic decline in demand and subsequent fall in commodity prices. With the current better forecasts for the economies of China, America and Japan in Q2-2013, demand for Indonesian commodities (in particular crude palm oil, metals and coal) is estimated to increase and should result in better performances of Indonesia's commodity exporting companies. Total profitability of Indonesian companies thus has a positive outlook.
Foreigners have kept high confidence in the Indonesian market as they have been pouring in money during Q1-2013: IDR 18.77 trillion (USD $1.95 billion) in stocks, IDR 10.23 trillion (USD $1.05 billion) in government bonds, and 65.5 trillion (USD $6.75 billion) in foreign direct investment (FDI). Analysts assume that the stock index will rise to 5,300-5,500 by the end of the year.
A number of risks that can damage current positive outlooks are high inflation (reduction in subsidized fuel), a weakening trade balance, a weakening IDR rupiah, and falling foreign exchange reserves.
| Stock Index | P/E Ratio x 25 April 2013 |
Index Performance 1 Jan – 25 Apr 2013 |
Economic Growth Projection 2013 |
| Indonesia |
18.2 | 15.70% | 6.2 |
| Japan |
28.2 | 33.97% | 0.8 |
| Thailand |
17.8 | 13.10% | 5.3 |
| South Korea |
33.6 | -2.28% | 3.1 |
| Malaysia | 15.7 | 1.03% | 5.1 |
| Singapore | 13.5 | 5.39% | 2.0 |
| China - Shanghai | 12.0 | -3.08% | 8.3 |
Source: Investor Daily