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5 Shares at Risk from the Indonesian Rupiah Collapse

Last week, the Indonesian rupiah collapsed to its weakest level against the green back in 20 years. One US dollar was equivalent to 14,825 rupiah, representing a 9% drop since the start of the year, making the rupiah one of the worst performing currencies in the region. Worse still, analysts believe that if credit spreads rise, the rupiah could plunge even further, and possibly surpass the 15,000 mark.

Market participants in Singapore reacted quickly to the news, selling down stocks that would be affected by the sudden collapse of the Indonesian rupiah.

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In an earlier article here, I highlighted three counters that were at risk from the recent rupiah collapse. Here are two more counters that could potentially be affected.

Japfa Ltd (SGX: UD2)

This industrial agri-food company operates across the whole agri-food business chain, from animal breeding, milking and fattening to the downstream business of ready-for-consumption food products. It derived more than 80% of its revenue from Indonesia last year.

Nevertheless, Japfa Ltd has held up well in the first half of 2018, as operating profit more than doubled on the back of higher average selling prices and volumes. That said, the further weakening of the rupiah might result in foreign currency translation risk in the future, as it reports its earnings in US dollar. Since 4 September, shares of Japfa Ltd have decreased 10.9% to S$0.61 per share.

First Real Estate Investment Trust (SGX: AW9U)

This trust, which owns a portfolio of 16 properties in Indonesia, three in Singapore and one in Korea has been a consistent performer in recent years as its distribution per unit (DPU) has grown 2.8% per annum from 7.5 Singapore cents in 2013 to 8.6 Singapore cents in 2017. It is also mostly shielded from the weakness in the Indonesian Rupiah as its rentals are received in Singapore dollars.

However, the trust does have a variable component to its rental income that is based on the tenants’ increase in revenue over the previous year. A weakening rupiah might affect its tenants’ revenue growth. Shares of First REIT trade at S$1.24 per unit, down 4.6% in the past week.

The Foolish bottom line

Foreign currency fluctuations can greatly impact the profitability of companies and real estate investment trusts. As investors, we need to be aware of these risks and ensure that our portfolio is sufficiently diversified such that any currency fluctuations will not overly impact our total portfolio returns.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of First Real Estate Investment Trust. Motley Fool Singapore contributor Jeremy Chia owns units in First Real Estate Investment Trust.