Indonesian growth brings relief amid widening earnings misses

A rebound in economic growth and consumer spending is bringing some optimism. (Bloomberg pic)

JAKARTA: Earnings misses at Indonesian companies have been getting worse. But a rebound in economic growth and consumer spending is bringing some optimism.

Members of the Jakarta Composite Index have trailed analysts’ profit estimates for at least nine straight quarters, with the average miss widening to 24% for the April-June period, data compiled by Bloomberg show. Still, analysts kept their bullish stance, raising their earnings projections for the nation’s companies despite a plunging currency.

Monday’s data were certainly encouraging: Southeast Asia’s biggest economy expanded at the fastest pace since 2013 thanks to better household spending. At the same time, investors will be keeping a watch on the central bank’s actions after it already raised its benchmark interest rate by 100 basis points since May 17.

“If this kind of growth rate can be sustained in the coming quarters, then this will be the first sign of recovery for corporate earnings,” Andy Ferdinand, head of research at PT Samuel Sekuritas Indonesia, said by phone from Jakarta. “However, we have to be cautious about how the recent increases in interest rates might affect future profits.”

Consumer goods companies may benefit from the rebound in economic growth, while a rise in coal and other metal prices may boost commodity stocks, according to Ferdinand and Credit Suisse Group AG analysts Jahanzeb Naseer and Benny Kurniawan.

The Jakarta Composite has regained 8.2% from a low last month, trimming its 2018 drop to 4.1%. Its valuation of 14.7 times estimated earnings for the next year is around its five-year average, data compiled by Bloomberg show.