Regional
Strategy: Foreign Buying Of
Thai Stocks And Jakarta Elections
Market
focus would be on President Trump’s policies and the impact on regional
markets. Whilst the HK market could see low trading activity due to the Lunar
New Year holidays, we believe net foreign buying of Thai stocks in January can
persist into February. The Jakarta elections in February would be the litmus
test for further political stability in our view, and we see likely BI
benchmark rate cuts in 2017 as positive for the property and auto sectors
there. Malaysia may see early general elections this year, and we also
highlight selective picks for the Singapore market.
Indonesia Strategy: All Eyes On February Election
JCI
continues to stay flat given lack of positive catalysts, with foreign outflows
dominating the trading tone – Jakarta election in February would be the litmus
test for further political stability. BI maintained its benchmark policy rate
given potential external volatility and rising inflation risk. We expect BI to
slash its key policy rate by another 25bps in 2017, to support economic growth
under stable IDR circumstances. Given global uncertainties, Indonesia’s
domestic-oriented economy provides much needed stability for investors, in our
view. This could eventually lure inflows back into the market, supporting the
index in the later part of 2017.
¨ Political tension
nearing the end?
Most of JCI’s recent underperformance can be attributed to rising political
tension prior to the Jakarta elections. The first round of elections is
scheduled for 15 Feb, and if needed, the second round would be held on 19 Apr.
Based on five recent pools, the situation remains fluid on swing voters (8.2%
to as high as 30.4%), suggesting all pairs of candidates have a winning chance.
Three surveys placed pair #1 as the winner, the highest among three pairs of
candidates. In the most recent survey by Populi Center, pair #2 (incumbent)
received 32%, 8-12% above others with swing voters of 10%. The incumbent is
supported by parties within the government-coalition and its winning in the
first round would bring fresh catalysts to the market, in our view.
¨ Stability over
growth.
Bank Indonesia (BI) kept its benchmark rate unchanged, in line with its efforts
to optimise domestic economic recovery while maintaining macroeconomic
stability, on higher global oil prices and uncertain global financial markets.
While BI appears to lean towards pro-stability policies vs pro-growth
currently, chances for the latter remain likely as we continue to project a
potential 25bps rate reduction this year to further boost economic growth. We
also believe that the reversal of rate policy is unlikely now, as this could
potentially derail the progress of economic growth thus far. The property and
auto sectors are main beneficiaries of lower interest rates, with Astra
International (Astra), Bumi Serpong Damai (BSD) and Ciputra Development being
our top picks.
¨ Infrastructure
continues to take centre stage. The Government continues to place
infrastructure spending as its main priority in 2017. With improvements in land
acquisition, government projects would become one of the main engines of growth
in the medium term. Construction companies saw considerable pick up in
orderbooks, with our top pick, Waskita Karya successfully securing IDR71trn
(+121.9% YoY) of new contracts in FY16 (our estimate: IDR65trn). Pembangunan
Perumahan (PTPP) recorded >IDR32.6trn in new contracts in FY16 (our
estimate: IDR31trn) or +14.5% YoY. We are expecting higher economic growth of
5.3% in 2017, driven by government-led spending.
¨ Positive value proposition. Indonesia continues
to offer value proposition on a long-term basis in our view, driven by lower
interest rates and reform-oriented government stimulus policies. While
inflationary pressures are rising on reduced energy subsidies and rising oil prices,
we believe it is still manageable especially given the Government's efforts in
curbing rising food prices domestically. Stronger commodity prices would also
reduce pressure on the current account deficit and partially alleviate pressure
on the IDR. The IDR may continue to face external headwinds, as expectations of
the US raising interest rates further this year have increased. Going forward,
re-rating catalysts for the market include greater currency stability on
stronger macro environment, and more pronounced demand recovery domestically.
We set our end-2017 index target at 5,850.
Kindly click the following link for the full report: Regional Monthly: Foreign Buying Of Thai Stocks And Jakarta Elections
Helmy Kristanto
Director
Head of Indonesia
Research
PT. RHB Securities
Indonesia
Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged. If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication. If you have received this communication by mistake, please notify us immediately by return email and delete the original message. This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and RHB Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and RHB Securities or on its behalf.
