Weak palm oil prices will contribute to curbing spending for millions of households in Indonesia this year, according one of the country’s best-performing fund managers, leading him to cut the weighting of his consumer stocks investments by more than a third.
Agus Yanuar, President Director of PT Samuel Aset Manajemen Indonesia said the drop in palm oil futures, which fell 19% in 2017, is affecting incomes of workers employed in the plantations and factories of the world’s largest palm oil producers. The futures are little changed this year, according to data compiled by Bloomberg.
Consumer goods stocks accounted for 5.8% of Yanuar’s SAM Indonesian Equity Fund in January after he reduced his holdings of the two biggest companies in the sector, drinks-to- detergents maker PT Unilever Indonesia and cigarette producer PT Hanjaya Mandala Sampoerna. He said he cut the proportion from 9.5% after the Jakarta Consumer Goods Index rallied 12% in December.
“Unlike coal or other minerals, which are controlled by major companies, higher palm oil prices would bring greater benefits for the plantation workers,” Yanuar said in an interview at his office in Jakarta. “One of the factors why we’re not seeing a strong recovery in consumption is because of the weak palm oil price.”
SAM Indonesian Equity is overweight on mining, banking, and some construction stocks, Yanuar said. The fund outperformed 97% of its peers over the past five years. Samuel Aset oversees about 9.8tn rupiah ($723mn) of assets, according to Yanuar.
There are about 5mn people, out of a working population of 121mn, employed in palm oil plantations and factories according to the Indonesian Palm Oil Association. 
Employees’ bonuses reflect their company’s revenue, while the incomes of small-holding farmers are directly linked to palm oil prices, said Eddy Martono, a divisional head at the association. 
A measure of income for small-holders rose by only 1.1% in December from a year earlier, compared with 2.39% in the previous year, according to the government’s statistics agency.
Gross domestic product for the agricultural sector, the second biggest contributor to the economy after the manufacturing industry, slowed to 2.2% in the fourth quarter of 2017, its weakest reading since the first quarter of 2016, statistics agency data show.
Leading global economic indicators point to a more solid global economic recovery this year, which should benefit energy and commodity producers, such as coal and industrial metals, Yanuar said. 
Coal producer PT Adaro Energy, energy company PT Medco Energi Internasional and mining contractor PT Delta Dunia Makmur are among the fund’s top five holdings, according to its factsheet.
The Jakarta Consumer Goods Index has added 0.2% since the start of 2018, making it the second-worst performing industry group, while the benchmark Jakarta Composite Index has risen 4.4%. The gauge of mining stocks has done best, surging 25%.
Indonesian household consumption accounted for more than half of the country’s gross domestic product last year, according to the statistics agency. Samuel said he expects Southeast Asia’s biggest economy to expand by 5.1% this year, below the government’s estimate of 5.4%, citing the lack of strong pick up in household spending.
“We are more conservative in our view as private consumption is expected to remain weak,” he said.


A man uses a smartphone as tickers display stock prices inside the Indonesia Stock Exchange in Jakarta (file). The Jakarta Consumer Goods Index has added 0.2% since the start of 2018, making it the second-worst performing industry group, while the benchmark Jakarta Composite Index has risen 4.4%.
Related Story