Indonesian fund managers are picking defensive stocks in the healthcare, consumer and infrastructure sectors as the broader equity market wilts on concerns over slowing growth, falling commodity prices and a weakening currency.
Indonesia's stock index has fallen by nearly 20 percent so far this year and is the worst-performing equity market in Southeast Asia. Economic growth in Southeast Asia's largest economy had slowed to its weakest pace in six years and the rupiah languishes at its weakest level in 17 years.
China's slowdown and weak global commodity prices have dented export growth.
The slow pace of implementing the infrastructure investment promised by President Joko Widodo has so far done little to turn around insipid domestic demand. But some data showing the government is speeding up infrastructure development may help drive up construction stocks.
Fund managers say Indonesians are reducing their living standards in this gloomy climate, raising the investment appeal of consumer staples - firms that make or sell everyday essentials such as cheap soaps and food.
The list of defensive "must have" stocks includes shampoo and soap maker PT Unilever Indonesia, whose stock price is up 14 percent so far this year.
"Some consumer companies have the ability to pass on increasing costs to their customers, like Unilever increasing selling prices by about five percent, making them quite defensive," said Hanif Mantiq of BNI Asset Management.
Unilever's must-have status has sent its valuation up to 45.78 times its next annual earnings. It is also the most expensive among Indonesian consumer stocks.
Biscuit and instant coffee-maker PT Mayora Indah Tbk has seen a 26 percent rise in its share price so far this year, with its 12-month earnings multiplier at 25.4 times. Shares of beverage supplier PT Ultrajaya Milk Industry & Trading Company Tbk have gained 7 percent this year.
Stocks of construction companies have been rising this month on revived hopes of infrastructure investment, indicated by rising cement sales and increased imports of capital goods.
Shares of construction firm PT Waskita Karya Tbk have gained 12 percent this year.
"I'm still optimistic about infrastructure development," said Andry Taneli, a fund manager with Ciptadana Asset Management in Jakarta, adding that he expects improvement in the fourth quarter and next year.
"I did some cross-checking with building material sellers in Kalimantan and they get more orders these days because of government infrastructure projects."
Healthcare counters are also on investors' radar with hospital operator PT Mitra Keluarga Karyasehat Tbk among the selections of local fund manager Ciptadana Asset Management. Fund managers are expected to stay with this defensive stance for the rest of the year.
Mantiq of BNI Asset Management expects inflation to steadily drop to a 5 percent pace in December, about 2 percentage points below current levels, giving Bank Indonesia some room to gradually cut interest rates next year to help consumption growth.
Meanwhile, commodities-related stocks are still suffering owing to weak demand from top importer China.