Weekly Report - Lacking momentum
September 16, 2014 10:30 WIB
Out of the top league
After touched an all time high level last week, heavy selling pressure dragged JCI down 1.4% w-w, mainly driven by uncertainty on potential macro volatility post the fuel price hike as well as political issue. JCI is now officially out of the top three leagues, only posted 20.3% return YTD, below India’s 27.8%, Philippines’ 22.3% and Thailand 21.8%. We have been of the view that in the near term, the removal of fuel subsidies will continue to be the major overhang in the equity market, especially since such a move would put upward pressure on inflation and possibly interest rates as well. Until there’s is more clarity in regards of timing and magnitude of the removal of fuel subsidy as well as the potential response from the BI in regards of its rates policy, market is unlikely make meaningful rebound. In fact, it could eventually put impediments on potential positive catalyst in Oct on continuation of positive trade data, inauguration of the new government as well as the cabinet member announcements.
Political tensions is intensifying
Aside from macro issue, the current potential revision of direct regional election continues to highlight the protracted precipitous tension on political front. Based on the recent survey from LSI (Lingkaran Survey Indonesia), vast majority of people in Indonesia still prefer direct election. Nonetheless, with Merah Putih coalition (Prabowo-Hatta) controls the majority of the parliament; the possibility of revision of this current direct election mechanism is widely open, and regional leader election in the future could be decided by Regional and Municipal Legislative Councils (DPRDs). If this revision were to be deliberated into law, it will arguably solidify the Merah Putih coalition position and strengthened their bargaining power. In our view, this situation continues to highlight the current fragile position of the new government, especially in gaining the majority support from the parliament for its future reforms and policies. In a more favourable development, it is reported recently that SBY has openly stated a support for the direct regional election system, which could change the possibility of the outcome, especially with his Party Democrat holds c.26% of parliamentary seat. Furthermore, Jokowi-JK announced yesterday that his cabinet will consist of 34 ministries, of which 16 ministers will come from political parties within his coalition, which ostensibly, could be seen as an effort to gain support from other parties to join his coalition. While the high proportion of political parties-linked minister might create discontentment from the market, stronger coalition would pave the way for a more effective government, in our view.
Substantial net out flow of IDR1.7t last week
Foreign net outflow dominated four of the five the trading days last week, with total weekly outflow reached IDR1.7t, even higher than the overall monthly outflow in August. As a results, overall net inflow YTD slightly reduce to IDR54.9t vs end July’ level of IDR57.2t. With heavy outflow, market liquidity improved with MTD turnover raised to IDR6.6t/day, up from IDR5.8t/day last week. As the market is expected to move sideways on lack of positive catalyst in the near term, liquidity is likely to weaken.
IDR strengthening play: KAEF initiation; Downgrade WTON on valuation call
One of potential positive impacts on continuation of macro improvement is IDR strengthening. In this regards, consumer and pharmaceutical sector will be one of the main beneficiaries given their heavy foreign currency exposure on their cost. We recently initiated coverage on Kimia Farma with BUY recommendation. Kimia Farma is one of the biggest pharmaceutical companies in Indonesia, which will positively impacted by IDR strengthening. The company will also transform itself to become a leading integrated healthcare company. Growth will be underpinned by rolling-out of national health insurance program (JKN), which emphasizes the usage of generic drugs. On the other hand, we started to see a fully priced in optimism on Wika Beton (WTON IJ), which has seen its share price doubled since IPO. We downgrade WTON on valuation call, while still see promising outlook on the construction sector
Trade Outlook August 2014
August 28, 2014 11:35 WIB
In June, Indonesia’s total exports reached US$ 15.4 bn, or up 4.0 percent MoM. On a YoY basis, they were up 4.5 percent. The higher exports stemmed from 5.6 percent YoY higher non oil and gas shipments. On a MoM basis, June’s exports were 4.8 percent lower in volume terms although, by contrast, the average aggregate prices surged 9.3 percent.
The exports of two major products - which accounted for 29.2 percent of non oil and gas exports - declined in June. Exports of animal and vegetable fats (HS 15) weakened 1.7 percent while exports of mineral fuels (HS 27) dropped 7.3 percent MoM. Despite this, the value of non oil and gas exports still rose, supported by stronger exports of other non oil and gas products such as electrical machinery, vehicle parts, and chemical products.
By destination country, June’s non oil and gas exports to Japan and the US remained firm. Shipments to Japan and the US strengthened by 4.5 percent and 9.3 percent, respectively, while, by contrast, non oil and gas exports to China dropped 7.9 percent MoM.
Strong demand during Ramadan and Idul Fitri led to higher import volumes in June. Import volumes were 5.6 percent higher, and average aggregate prices were up 0.8 percent MoM. As such, the value of Indonesia’s imports increased significantly by 6.4 percent MoM to US$ 15.7 bn. By product type, the imports of mechanical machinery and equipment (HS 84) surged 18.2 percent while imports of electrical machinery and equipment (HS 85) declined 0.5 percent.
Non oil and gas imports from Indonesia’s major trading partners strengthened. Indonesia’s non oil and gas imports from Japan rose the most (+21.6 percent), followed by non oil and gas imports from China (+5.9 percent) and then Singapore (+2.3 percent).
By classification, imports of all types of goods rebounded. Imports of consumer goods gained the most (+10.5 percent), followed by imports of capital goods (+9.6 percent), and imports of raw materials (+5.4 percent). In the first half of 2014, imports of raw materials accounted for 76.5 percent of Indonesia’s total imports.
In June, imports growth exceeded exports growth. This resulted in a trade deficit of US$ 305.1 mn. Cumulatively, in the first 6 months of the year, Indonesia’s foreign trade still shows a deficit of US$ 1.1 bn, yet far lower than the deficit of US$ 3.3 bn recorded in the corresponding period of last year.
CPI & SBI Outlook August 2014
August 28, 2014 11:38 WIB
Inflationary pressures picked up in July on seasonal factors related to Ramadan and the Idul Fitri holidays. In July 2014, the MoM inflation rate reached 0.93 percent. YTD the inflation rate reached 2.94 percent, whilst on a YoY comparison inflation showed an easing trend, falling to 4.53 percent, reflecting the high base effect from last year’s subsidized fuel price hikes.
On a monthly comparison, prices in all components of the CPI increased. The foodstuffs and prepared foods components increased by 1.94 percent and 1.00 percent, respectively. At the same time, prices in the transportation component also increased (+0.88 percent), followed by the clothing component (+0.85 percent), the education component (+0.45 percent), the housing component (+0.45 percent), and the medical care component (+0.39 percent). In July, higher demand and increasing spending led to significant increases in the prices of foodstuffs and prepared foods. Transportation spending rose as urban citizens tended to visit their hometowns. Education costs also picked up because of the start of the new school year.
For August, we predict that pricing pressures from foodstuffs and prepared foods will return to normal, and therefore ease. Nonetheless, prices in the education component will likely increase further due to the new academic year which begins in the July-September period.
Against this backdrop,inflationary pressures are expected to ease in August 2014. We predict inflation of 0.24 percent MoM, translating into YoY inflation of 3.75 percent.
In its August meeting, Bank Indonesia kept its benchmark BI rate unchanged at 7.5 percent, with the Lending Facility and Deposit Facility rates also stable at 7.50 percent and 5.75 percent, respectively. The central bank’s tight monetary stance is likely to continue, we believe, given the latest macro developments with the current account still showing a large deficit. The current account deficit reached US$ 9.1 bn (4.27 percent of GDP) in the second quarter of 2014, albeit down from a deficit of US$ 10.1 bn (4.47 percent of GDP) in the same period last year. As such, despite the prospects of benign inflation over the near term, we predict that the central bank will maintain the BI rate at its present level.
|Exports||US$ 13.90 bn|
|Imports||US$ 13.50 bn|
|Trade Balance||US$ 450.10 bn|
Forecast for 2014
|Exports||US$ 196.40 bn|
|Imports||US$ 192.30 bn|
|Trade Balance||US$ 4.10 bn|
|End of period(% p.a)||7.50|
Forecast for 2014
- Weekly Report: Finding Support
- Company update: BBNI
- Tower Sector: Clear Path Ahead
- The onus is on the new government
- Company update: ANTM
- Trade Outlook May 2014
- Trade Outlook April 2014
- Trade Outlook Maret 2014
- Trade Outlook Februari 2014
- Trade Outlook Januari 2014
CPI & SBI Outlook
- CPI & SBI Outlook April 2014
- CPI & SBI Outlook Maret 2014
- CPI & SBI Outlook Januari 2014
- CPI & SBI Outlook Desember 2013
- CPI & SBI Outlook November 2013