(Bloomberg) -- Commodities firms with downstream investments are likely to benefit most from policy support unveiled in Indonesia’s annual budget, while the health-care sector is least favored, analysts say.
President Joko Widodo said on Tuesday that the Southeast Asian nation will shift its economy into producing more value-added goods and away from purely selling raw materials. The message was part of a broader speech to parliament where he also announced plans to shrink the budget deficit and cut health-care and social protection spending.
Indonesia -- one of the world’s biggest producers of energy products including natural gas, coal and palm oil -- has seen its equities market soar on the back of supply shortages. The benchmark Jakarta Composite Index, which has rallied 8.4% this year through Tuesday, may see further gains following the new roadmap. JCI added as much as 0.6% in early trade as the market reopened after the independence day holiday on Wednesday.
Read more: Indonesia Aims to Shrink 2023 Budget Gap as Covid Risks Wane
The focus on greater fiscal discipline will likely be welcomed by the stock market, said Nirgunan Tiruchelvam, an analyst at Tellimer Ltd. “Investors will be encouraged by Indonesia’s status as a commodity hub and a bustling consumer market. Both those sectors will flourish with the reopening, particularly the palm oil and rubber companies,” he added.
Winners include miners PT Aneka Tambang and PT Vale Indonesia, firms that are investing and expanding in downstream production, according to Cristopher Andre Benas, head of research at BCA Sekuritas. While Aneka is down more than 7% this year, shares of Vale are up nearly 40%.
Plans to reduce 2023 borrowing as well as a target for gross domestic product growth to return to pre-pandemic levels will also boost market sentiment despite broader concerns about a possible US recession.
“Compared with other countries, Indonesia’s fiscal improvement is faster, clearly showing Jokowi is putting fiscal discipline as one of his priorities,” said Kota Hirayama, an economist at SMBC Nikko Securities. “While a cut in spending is a worry for the economy, a large part of its negative impact can be absorbed given the country’s economic growth has come back to its cruising speed before the pandemic of around 5%.”
Here’s what analysts see as the main winners and losers from the budget:
- Mining companies: PT Adaro Minerals Indonesia, PT Merdeka Copper Gold and tin producer PT Timah should benefit from moving into downstream production, said BCA Sekuritas’ Benas, with increasing global and automotive industry demand for their products. Adaro Minerals climbed as much as 3.7% on Thursday, Merdeka Copper was down 2.4% and Timah added 2%.
- Technology, banks and telecommunications: A target for 30 million smaller businesses to use digital systems by 2024 will support e-commerce platforms such as PT GoTo Gojek Tokopedia and PT Bukalapak.com, as well as lender PT Bank Rakyat Indonesia. Telecom companies and tower operators PT Telkom Indonesia, PT XL Axiata, PT Indosat, and PT Sarana Menara Nusantara are also seen as beneficiaries. Bukalapak gained 1.8%, BRI was up 1.4% and Telkom rose 1.6%.
- Property and construction companies: A target to see private investors funding most of the development of Indonesia’s new national capital in Borneo offers opportunities to real estate developers such as PT Bumi Serpong Damai, PT Ciputra Development and PT Summarecon Agung, as well as contractor PT Acset Indonusa. Bumi Serpong added as much as 1% in early trade, while Ciputra Development fell 1%.
- State builders PT Wijaya Karya, PT Adhi Karya, PT Waskita Karya as well as toll-road operator PT Jasa Marga will benefit from higher infrastructure spending. Wijaya Karya rose 2.8%, Waskita was up 2.6% while Jasa Marga declined 0.9%.
- Health-care stocks such as PT Mitra Keluarga Karyasehat, PT Siloam International Hospitals, PT Medikaloka Hermina and laboratory operators PT Prodia Widyahusada, PT Diagnos Laboratorium Utama stand to lose from lower government spending on public health as the pandemic ebbs. Mitra Keluarga was up 1.6%, while Prodia gained 0.9%.
(Updates with stock moves in bullet points)
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