Strategy:
Indonesia (Overweight),
An Opportune Reshuffle
Indonesia (Overweight),
An Opportune Reshuffle
Yesterday’s Cabinet
reshuffle will provide a positive surprise to the market, especially with the
return of Sri Mulyani Indrawati as the Finance Minister. We believe the Cabinet
reshuffle was made:
1. Not just to redistribute ministerial
positions to keep political parties that support the government happy but;
2. Also to strengthen the working
Cabinet; and
3. To improve ties between government
institutions.
We continue to have a positive view on
Indonesia’s macroeconomic outlook, and maintain our OVERWEIGHT stance on the
overall economy.
¨
Takeaways. Yesterday, the
Government announced a Cabinet reshuffle for 14 posts involving three
coordinating ministries, 10 ministries and one non-ministerial body. We note
three main points on the reshuffle:
i. It had the “grandeur factor” (ie the most
buzz), with Sri Mulyani appointed as the Finance Minister (which will lead to a
positive surprise for the market);
ii. It makes political parties that support the
Government happy, and addresses the need to upgrade the capabilities of the
Cabinet;
iii. It is done at the right time, as Indonesia
has just entered a new stage by implementing the tax amnesty.
¨
We
believe the passing of the tax amnesty implies that the Government is in a
stronger position. The current Cabinet reshuffle, which sees representatives of
new supporting parties (PAN and Golkar) appointed to certain posts, will also
cement an effective government. This is crucial, especially as the country is
still on the cusp of major transformation, and positive ties of the bureaucracy
and Parliament would be imperative at this stage.
¨
Sri
Mulyani is back.
With the major changes in economy-related ministries and given Sri Mulyani’s
solid track record and experience, we continue to believe that the macroeconomy
will improve. Sri Mulyani was appointed as Finance Minister in 2005 by
President Susilo Bambang Yudhoyono, and was made the Coordinating Minister of
Economy during the 2008 global economic crisis, before she left to become a
World Bank managing director in Jun 2010. In several Cabinet reshuffles in the
past, it was often rumoured that she would return to be appointed as a
minister. Her appointment is a further testament of the changes in the
political landscape that supports the Joko Widodo (Jokowi)-led government. She
is also seen to be pro-market and would support the market through policies.
This will boost confidence in the capital market.
¨
Less
discord.
We also believe that the reshuffle was made to promote harmony among
ministries. In the past, there was often discord between some government
institutions. This has sent mixed signals to the public – which could later
reduce the public’s confidence in the Government. As we expect the ties between
ministries to improve, we also expect for better delivery times for key
government projects (which will reduce concerns over execution risks).
¨ Macroeconomic outlook still upbeat. As the economy starts to show signs of recovery, we also expect the reshuffle to lead to the implementation of key government initiatives being sped up. In the short term, we expect household consumption to grow and the improved stability of IDR to support selected sectors. We also anticipate good 1H16 results from companies in the media, consumer, poultry and automotive sectors. Our Top Picks are Astra International, Bank Negara Indonesia, Telekomunikasi Indonesia, Bumi Serpong Damai and Waskita Karya Persero.
¨ Macroeconomic outlook still upbeat. As the economy starts to show signs of recovery, we also expect the reshuffle to lead to the implementation of key government initiatives being sped up. In the short term, we expect household consumption to grow and the improved stability of IDR to support selected sectors. We also anticipate good 1H16 results from companies in the media, consumer, poultry and automotive sectors. Our Top Picks are Astra International, Bank Negara Indonesia, Telekomunikasi Indonesia, Bumi Serpong Damai and Waskita Karya Persero.
Best regards,
Helmy Kristanto
Director
Head of Indonesia
Research
PT. RHB Securities
Indonesia
