Strategy:
Opportunity In Adversity
Opportunity In Adversity
We
remain positive on Indonesia’s macro development, marked by a lower interest
rate environment and government stimulus policies, paving the way for stronger
economic growth in 2017. Indeed, a precarious milieu is likely in early 2017,
both from external and domestic factors. More cohesive policies are therefore
imperative in overcoming the challenges, and we continue to see progress.
Rising inflation though, could pose a limitation to Central Bank’s policy for
further relaxation. In our view, Indonesia continues to offer investors
attractive long-term value.
♦ Entering a new stage.
With
the current global uncertainties, Indonesia’s domestic-oriented economy
provides much needed stability for investors, in our view. We believe
Indonesia’s economy is growing, supported by large domestic consumption which
accounts for more than half of the economy. Post economic slowdown in
2014-2015, Indonesia’s economy has been recovering, as seen in the positive
trend of economic growth, mainly underpinned by the Government and Central
Bank’s combined efforts to propel economic growth further.
♦ Supported by stimulus programmes,
expansionary polices, and a successful tax amnesty programme, Indonesia is
progressing into a new stage of growth cycle. The positive effect from these
policies should materialise more prominently in 2H17, in our view, which would
help underpin stronger projected economic growth of 5.3% in 2017. In early-2017
though, we believe increased uncertainties are likely to dominate the tone of
investments, leading to an insipid and volatile market where blue chips and
commodity stocks are likely to outperform.
♦ Infrastructure
remains key focus. The
Government’s continued efforts to pump in infrastructure-related spending in
2017 would support higher economic growth. There have also been improvements in
land acquisition, with some large scale projects finally seeing progress. We
expect the budget deficit to further enlarge to 2.8% of GDP in 2017.
Deregulation policies have improved the investment climate, and foreign direct
investment (FDI) is expected to pick up further, mainly in secondary sectors,
creating a multiplier effect on the economy.
♦ Proliferation of
uncertainties in the beginning of 2017. The recent spike in volatility in the currency
and equity markets clearly show that Indonesia is not entirely immune to
external risks. The heightened political tension has also added pressure
domestically. While we expect a further 25bps cut in the benchmark rate in
2017, the current rising oil price might limit Central Bank’s policy
flexibility, in our view. Nonetheless, we believe that these risks should not
reverberate although the rising current account deficit (CAD) level and higher
currency volatility could add to the risk factor. On the former, CAD is
expected to remain at a manageable level, while stronger economic growth and
ample forex reserves should support the IDR, in our opinion.
♦ 2017 index target of
5,850. Catalysts
supporting market performance include:
i. Central Bank continuing its expansionary
policies – we expect another 25bps cut in the benchmark rate;
ii. More conducive political situation with
continued focus on infrastructure development to support structurally higher
economic growth;
iii. More stability in the currency given a
stronger macro environment;
iv. More pronounced demand recovery on the back
of a low interest rate and inflation environment;
v. Potentially some upward revision to corporate
earnings.
♦
We set
our end-2017 index target at 5,850, a 10-15% upside from current levels.
Kindly click the following link for the full report: Strategy - Indonesia: Opportunity In Adversity
Best regards,
Helmy Kristanto
Director
Head of Indonesia
Research
PT. RHB Securities IndonesiaDisclaimer: 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 PT RHB Securities Indonesia 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 PT RHB Securities Indonesia or on its behalf.
