Many share prices on the Indonesia Stock Exchange (IDX) declined this year, but consumer goods stocks suffered the most and became the worst performers.

Despite being deemed a resilient sector by market players because people always buy consumer goods regardless of the economic situation, the price index of those stock declined by 20.39 percent year-to-date (ytd) as of Friday.

The decline was the largest among all other sectors that recorded declines throughout this year, such as mining, miscellaneous industry, manufacturing, agriculture and trade and the service and investment sectors.

The sharp decline of prices in the consumer goods sector was mainly caused by a fall in the prices of large-cap consumer goods stocks, which contributed a big weighting on the stock price index.

Consumer goods giant PT Unilever Indonesia’s share price, for example, declined by 9.86 percent ytd as it recorded a weak performance throughout the first nine months of this year. Although the company booked a 2.63-percent year-on-year (yoy) increase in total revenue to Rp 32.36 trillion (US$2.31 billion), its profits fell by 18.47 percent yoy to Rp 5.4 trillion.

In the meantime, the government’s decision to hike tobacco excise by 23 percent on average and retail prices by 35 percent made a negative impact on cigarette stocks as the share prices of a major cigarette producer, PT HM Sampoerna, nosedived by 44.2 percent ytd, while the share prices of another, PT Gudang Garam, plummeted by 37.34 percent ytd.

The fall in such blue chip shares not only affected the sector’s price index but the Jakarta Composite Index’s (JCI) performance as well. The heavy weightings of these stocks caused the IDX’s main gauge to record a “stagnant” growth of 1.5 percent ytd.

Analysts attributed the decline of consumer goods stocks to jitters among investors amid the slowing of the global and domestic economic growth.

According to Statistics Indonesia (BPS), Indonesia’s economy grew only by 5.02 percent in the third quarter of this year, the least in more than two years. The figure marked a slowdown from 5.07 percent in the second quarter and 5.05 percent in the first quarter.

“Many investors, especially foreigners, are opting out of risky assets like Indonesian stocks as global economic growth seems to be continuing to decline this year,” said Yosua Zisokhi, Samuel Sekuritas equity analyst, on Aug. 8.

As a result, foreign investors sold their blue-chip stocks that mostly consist of consumer goods companies like Unilever and HM Sampoerna and turned to safer assets like bonds, gold and cash.

Aside from the global economic condition, some also predicted the slowdown was caused by slowing consumption as household spending — which accounted for more than half of the GDP — stayed at 5.01 percent yoy in the third quarter of this year.

Such a prediction was reflected in Association of Indonesian Retailers (Aprindo) data that showed retail sales in the third quarter of this year only grew by 6 percent yoy, said chairman Roy Mandey on Nov. 20.

Although the same could not be said of consumer goods products, publicly listed pharmaceutical company Kalbe Farma president director Vidjongtius said consumer preferences changed during times of slowdown by seeking for more value for money than prestige in a product.

“Our premium powdered milk and health supplement sales were lower than our mid-segment counterparts, while our generic medicine sales recorded higher growth this year,” he told The Jakarta Post recently.

To cater to new consumer preferences, consumer goods companies actively came up with innovations for their products.

Unilever Indonesia, for instance, launched five new products and 27 innovations for its existing product line, from food to skincare products, from the third quarter of 2018 until the middle of this year that catered wider ranges of consumers from the premium to middle-to-lower segments.

Some of the products include halal skincare products that targeted the premium segment to accommodate the country’s Muslims and a rising demand from the premium segment, as well as an ice cream brand specifically designed to cater to the middle-to-lower segments.

Consumer development director Enny Hartati Sampurno said in May that the ice cream was met with much enthusiasm from the public. “This made us realize that this segment is quite interesting and has a huge potential as 60 percent of Indonesia’s population is made up of this segment,” she said.

BNI Sekuritas analyst William Siregar said, however, that slowing economic growth was not the sole reason for the drop in consumer goods stocks, as the bourse’s free-float policy introduced earlier this year also contributed to stock sell-offs.

Under the free-float adjusted index, the listed companies’ weighting is based on the number of shares available for trading (free-float) rather than the total number of shares outstanding, which was the gauge previously used by the stock exchange. The change of the index calculation methodology is expected to reflect the real picture of the price of shares.

William said the new policy prompted global fund managers to sell most blue-chip consumer goods stocks to balance their portfolios. “As a result, foreign funds exited from blue chip stocks like Indofood and led to a decline of their share prices,” he said. “Their fundamentals are actually all fine.”

Indofood’s net profits soared 25 percent yoy to Rp 3.53 trillion in the first nine months of this year, while its overall sales grew by 5.67 percent yoy to Rp 57.85 trillion.

Although the sector is likely to move into bearish territory until the end of this year, some consumer goods stocks are moving upward as foreign investors turn back to Unilever, HMSP and INDF stocks.

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