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Indonesian construction prospects drive share prices

Indonesia's booming building sector has caused shares of construction companies to surge in 2014, with even greater growth projected for 2015, as the country launches even more major projects.

Billions of dollars are being invested in brand new developments which are aiming to not only improve transport routes and commercial activity, but also to solidify Indonesia's growing reputation as a hub of financial activity.

The plans are being spearheaded by new President Joko Widodo, who began a five-year term in October and has already announced plans to build hundreds of new buildings and a mass rapid transport system in Jakarta to make it easier for locals and visitors alike to navigate the burgeoning metropolis.

Market changes

The effect on construction companies has been significant, with shares of Wijaya Karya, the state-controlled building firm, doubling in 2014. Things have been even more positive at other state-controlled firms, with shares in Waskita Karya and Pembangunan Perumahan nearly tripling.

The impact has been equal among large and small firms alike, with the biggest privately-controlled construction firm, Total Bangun Persada, seeing shares increase by around 120 per cent.

On average, the 13 listed construction firms on the Indonesian exchange have seen their shares climb by around 90 per cent in 2014, despite the market benchmark index being only 20 per cent, which indicates that the building sector is driving the economy into 2015.

Looking ahead

Such has been the pace of expansion that construction shares are now regarded as expensive compared with those in other firms, with some priced close to 30 times their earnings, compared to the average price-earnings ratio of around 16 for the market as a whole.

According to analysts, many investors are willing to value construction stocks at a significant premium, mainly due to the optimism that Mr Joko is infusing thanks to his increased emphasis on infrastructure.

With further announcements due in early 2015 and an increasing number of investors being attracted to the market, the future looks bright for Indonesia's building sector and the wider economy.

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