Aberdeen Indonesia Equity Fund Annual report to 30 September 2014
Performance Review The Aberdeen Indonesia Equity Fund rose by 10.94% in Singapore dollar terms for the year under review, underperforming the benchmark which returned 17.29%.
Market Review Indonesian equities made robust gains over the last 12 months, as Joko Widodo, favoured by investors for his pro-reform stance and ability to kickstart infrastructure projects in Jakarta, won in presidential elections. However, following this, the opposition coalition made blatant attempts to undermine him, including passing a bill to remove direct regional elections, but thankfully the standing president blocked the bill. In another swipe at Jokowi, parliament passed a budget that left no room for his projects, however the budget can be amended early next year. In monetary policy, the central bank raised interest rates to 7.5% early in the review period, to support the rupiah and tame inflation, but then held them steady as growth slowed. The current account deficit was a lingering issue, exacerbated by a ban on raw mineral exports and weakening commodity prices. Towards the period end, several large miners reached agreements with authorities, regarding taxes and commitments to build processing plants, enabling shipments to restart.
Portfolio Review At the stock level, our bank holdings cost the fund most in terms of relative performance. Among the detractors was Bank OCBC NISP, as the lender’s share price weakened after it raised US$340 million via a rights issue to strengthen its capital structure and support business growth. Bank Permata lagged, owing to weak results as higher loan growth was countered by increased provisions and slowing bottom-line growth. The bank also undertook a fund-raising exercise for working capital purposes. Furthermore, not holding Bank Rakyat detracted, as it registered good results with growth across interest and non-interest income, bolstered by cost reductions. We are cautious against holding the bank, as it suffered from low asset quality in the past.
On the other hand, contributing to relative performance was Wintermar Offshore Marine. The company continued to benefit from upbeat demand for marine support vessels, as Indonesia increased capital expenditure to boost oil production. In the mining sector, Vale Indonesia benefited from the ban on unprocessed mineral ores, as it has local smelters to process nickel. This allowed it to continue shipments, while supply disruptions among competitors drove up the price.
Meanwhile, consumer products firm Mandom Indonesia performed well thanks to strong exports and solid sales of its flagship Gatsby brand. Furthermore, management remained disciplined in controlling costs. Elsewhere, our underweight to Astra International benefited the fund, as the conglomerate was weighed down by a weaker sales outlook for its four-wheeler distribution business, as well as the impact of lower palm oil prices on its plantations subsidiary.
In portfolio activity, we participated in Bank Permata and OCBC NISP’s rights issues, to strengthen their capital bases and give them more flexibility for sustained growth.
Against this, we sold Austindo Nusantara Jaya because in terms of business outlook we think there are better opportunities elsewhere.
Source: Aberdeen Asset Management Asia Limited The performance returns are sourced from Lipper, based on percentage growth, calculated on a NAV-to-NAV basis with gross income reinvested.