Bargain-hunting usually means waiting for a sale, and right now Allan Gray reckons it has found one of the biggest going. The Cape Town-based asset manager, which runs about R472.5 billion, has entered the Indonesian market after a savage selloff there created what it sees as a buying opportunity. That slump only sharpened during the recent Iran war, which helped push prices down even further and left a market most local investors would normally avoid looking unusually cheap.
The world's worst-performing market
Indonesia is not a place most South African savers think about, but the numbers are hard to ignore. The Jakarta Composite Index is the world's worst-performing benchmark this year, down more than 35% in dollar terms among the 92 equity indexes tracked by Bloomberg. Much of that pain traces back to a January warning from index provider MSCI that Indonesia could be downgraded to frontier-market status, a lower rung reserved for smaller, riskier markets, because of concerns about how easily investors can actually buy and sell its shares. The mood soured again on Wednesday after S&P Dow Jones Indices signalled the country could eventually lose its emerging-market status too if worries over its equities market persist, and stocks fell another 1.3%.
Buying when others are running
This is exactly the kind of chaos Allan Gray likes. Portfolio manager Rory Kutisker-Jacobson wrote in a note on Tuesday that "periods of heightened volatility and investor uncertainty present a particularly fertile hunting ground for patient, valuation-driven investors in frontier markets," adding that such markets are "often overlooked or poorly researched by global investors, resulting in significant pricing inefficiencies and, at times, compelling opportunities." The firm made its first Indonesian investment last month in PT Indofood Sukses Makmur, one of the world’s largest makers of instant noodles, and plans others. On the manager’s own estimates, Indofood trades on just over five times earnings, which Kutisker-Jacobson calls "a good price to pay for a dominant, cash-generative, consumer-facing business."
The bet sits inside the Allan Gray Frontier Markets Equity Fund, co-managed by Kutisker-Jacobson, which has returned nearly 9% so far this year and recently added small positions in Mexico, Poland and Turkey while trimming its holding in Seplat Energy. If Allan Gray's patience pays off, a bowl of Indonesian instant noodles could end up looking like one of the year's smarter buys for South African savers.
