(Bloomberg) -- Indonesia’s 3.6 quadrillion rupiah ($230 billion) budget for next year will prop up consumer, food and health-care stocks as President-elect Prabowo Subianto is set to take office.
Investors see the spending plan as ensuring policy continuity between Prabowo and outgoing President Joko Widodo. The blueprint, delivered by Jokowi on Friday, features some of Prabowo’s priority programs that won him the election such as his free meal program for students, as well as the current administration’s focus on green energy and commodity downstreaming.
Officials aimed to address “middle income issues and that will push higher discretionary spending,” said Jeffrosenberg Chen Lim, head of research at PT Maybank Sekuritas Indonesia. “As long as the economy is humming, the population is going to spend more money.”
The benchmark Jakarta Stock Exchange Composite Index ended Friday 0.3% higher and remained near its all-time high. The gauge has advanced more than 47% since Jokowi became president in 2014.
Here’s a look at the stocks that may benefit or lose out from the budget:
Winners
- Food security-related spending is set to increase 9% next year, in part as Prabowo seeks to gradually provide free meals for students from elementary to high school levels. The higher spending could benefit food giant PT Indofood Sukses Makmur and its unit PT Indofood CBP Sukses Makmur, plus retailer PT Mitra Adiperkasa.
- Support toward public health and social welfare programs will aid health-care providers such as PT Medikaloka Hermina and PT Mitra Keluarga Karyasehat, drug maker PT Kalbe Farma, and herbal products manufacturer PT Industri Jamu dan Farmasi Sido Muncul, according to Andrey Wijaya, head of research at PT RHB Sekuritas Indonesia.
- The government’s target to keep economic growth at above 5% next year will provide a windfall for lenders as domestic activities remain strong, said Jerry Goh, investment director of Asian equities at abrdn.
- Automotive makers such as PT Astra International may find support from increased consumption on the back of rising income, according Maybank’s Chen Lim.
- The effort to continue with minerals downstreaming should prop up some miners, including PT Aneka Tambang and PT Vale Indonesia.
- Green-energy policies may buoy renewable companies like PT Barito Renewables Energy and PT Pertamina Geothermal Energy.
- Read more: Half Steam Ahead for Indonesia’s Geothermal Power Plants: BNEF
- The property sector may get a boost from a solid outlook for landed residential, hotels and retail, underpinning developers PT Summarecon Agung and PT Pakuwon Jati.
- The budget assumptions were broadly in line with what had been previously announced, which may help keep positive sentiment toward the rupiah until Prabowo takes office given the nation’s growth outlook and expectations of a looming central bank rate cut.
- “Diminishing fiscal fears and a potentially earlier rate cut could lead to investors re-engaging in local markets and fuel further limited gains in the currency,” Goldman Sachs wrote in a note to clients.
Losers
- Indonesia’s plan to cut infrastructure spending by 6% may impact some construction stocks like PT Indonesia Pondasi Raya and PT PP. “When we look at the infrastructure sector itself, the valuations have already been beaten down quite heavily,” said abrdn’s Goh.
- Still, support may come from a slow-moving development to relocate the nation’s capital to Nusantara, a proposal that’s endorsed by Prabowo.
- Infrastructure spending also “justifies some upside for state-owned enterprise type banks, such as PT Bank Negara Indonesia,” said Sat Duhra, a fund manager at Janus Henderson Group Plc.
- A planned tax on sweetened drinks may hit earnings of fast-moving consumer goods companies such as PT Ultrajaya Milk Industry & Trading Co. and PT Cisarua Mountain Dairy.
- A heavier bond issuance target in 2025 could weigh Indonesian debt next year, though the government can draw cash from its accumulated surplus if needed, according to Maybank.
--With assistance from Soraya Permatasari and Matthew Burgess.
©2024 Bloomberg L.P.
