(Repeats story first published on Thursday, no change to text)
By Fransiska Nangoy
JAKARTA, March 26 (Reuters) - Fund managers and foreign
investors are bailing out of Indonesian stocks as worries grow
that a perfect storm of a sliding rupiah, record levels of
foreign debt and rising import costs could bring some businesses
to their knees.
Making matters worse, the benefits of a falling rupiah to
Indonesia's major agricultural and mineral exports have been
eclipsed by a steep decline in commodity prices.
The biggest concern for investors is a tripling of private
foreign debt since the 2007 financial crisis. The fear is that
sustained currency weakness will start ramping up the debt
burden and servicing costs, crunching corporate earnings in the
Moreover, the rupiah's 5 percent fall against the dollar
this year on top of the 2 percent slide in 2014 means most
offshore investors are sitting on losses on their original
investments. That confluence of factors could trigger a wave of
foreign capital outflows from the stock market where foreigners
account for 40 percent of equity transactions.
Citing currency weakness, Edward Lubis, president director
of Bahana TWC Investment which has 28 trillion rupiah ($2.15
billion) under management, said: "We are reducing our position
on equity. We are on neutral now, and we are less optimistic
than we were a month ago."
That pessimism is borne out by the Jakarta stock index
<.JKSE> , which though up 3.4 percent this year in rupiah terms,
is still among the worst performers in the region in dollar
The rupiah's decline has taken it to around 13,000 per
dollar, hurting profits for foreigners in a market that is
already trading expensively at 17 times earnings.
Norico Gaman, head of research at BNI Securities, estimates
the bulk of foreign equities money came in at an average rate of
12,200 rupiah per dollar, meaning they are already sitting on
currency losses of 6.5 percent.
Chart on Indonesia external debt: http://bit.ly/1IoqIqV
DEBT FLASH POINT
The main worry, analysts say, is that the relentless rise of
foreign debt could be the potential flash point for investors
ploughing money into equities of Southeast Asia's biggest
"Even if exports are helped by the weaker rupiah, it would
not be enough support to the market," said Harry Su, head of
research at Bahana Securities. "There are more factors that will
drag the market down, such as foreign debt and import costs."
Private sector external debt, excluding the financial
sector, has jumped threefold since 2007, hitting $121.18 billion
at the end of 2014 or 41 percent of the country's foreign debt.
According to Nomura strategist Mixo Das, 40 percent of
Indonesian corporate debt funding is from abroad, which makes it
difficult to support a strong stock market amid a weakening
An analysis of foreign debt at 44 Indonesian firms by Ferry
Wong, Citi's equity strategist, shows 11 of them have net
foreign debt above 50 percent of equity. Plus, several of them
including media companies PT MNC Sky Vision Tbk <MSKY.JK> and PT
Visi Media Asia Tbk <VIVA.JK> do not hedge their debt, meaning
the debt burden surges as the currency weakens.
Earnings could also take a hit because of the high interest
costs, especially if foreigners start slowly exiting the
high-yielding bond market and so pushing up interest rates.
UBS emerging market strategist Bhanu Baweja warns that any
volatility in rates could hurt sectors such as consumer
discretionary, financials and industrials, which have so far
supported the stock market.
Foreign ownership of the government bond market has fallen 2
percentage points to around 38.4 percent since the beginning of
March. Ten-year yields <ID10YT=RR> have climbed to 7.5 percent
from 6.9 percent.
"You are betting on the sectors where bond market
performance is necessary," Baweja said.
(Editing by Vidya Ranganathan & Shri Navaratnam)
((Fransiska.Nangoy@thomsonreuters.com; +62 21 2992 7610;
Keywords: MARKETS INDONESIA/STOCKS