PERSPECTIVE3-5 min to read

Quarterly Market Recap & Commentary 1Q 2023

JCI declined 0.7% QoQ to 6,805 with around Rp6.6tn net foreign buy. The index volatility was still driven by external factors. Indonesian Financial Service Authority (OJK) mentioned that the closure of Silicon Valley Bank (SVB) would not have a direct impact to Indonesia’s banking industry. Despite the volatility triggered by US and European regional banking stress, majority of the global market ended the quarter in positive territory. Inflation continued lower and the pace of central bank rate hike was slower.

MA commentary march


The government enrolled 2nd covid booster shot on 24 January for people above 18 years old and have received the first booster shot in more than 6 months.

Indonesian Financial Service Authority (OJK) mentioned that the closure of Silicon Valley Bank (SVB) would not have a direct impact to Indonesia’s banking industry as there was no business connection, facility lines or any investment in SVB securitized products. The regulator believed that Indonesia banking industry has a solid capital, ample liquidity, and resilient amid global economic pressure.

IMF upgraded Indonesia FY23 GDP forecast to 5% from 4.8% on stronger government performance in holding positive current account balance, inviting FDI and foreign portfolio investment.World bank upgraded East Asia and Pacific region GDP to +5.1% from 4.6% in the previous forecast. China's economy forecast was raised to 5.1% from 4.5% on business activities recovery and minimum impact from the global banking stresses.

The government allocated Rp 1.75tn subsidy for 2W EV. The subsidy targets 200k new motorcycle sales and 50k motorcycle conversation (from fuel to EV); with Rp7mn subsidy per unit. Subsidy will only be given to domestically produced vehicle with more than 40% local content.

2M23 fiscal recorded a surplus of Rp131.8tn or 0.63% of GDP. Fiscal revenue increased 38.7%YoY to Rp419.6tn while expenditure increased 1.8%YoY to Rp287.8tn. February trade surplus recorded at USD5.48bn, surpassing consensus expectation at USD3.27bn. Export growth slowed to +4.5%YoY as coal export value normalized yet iron and steel export to China offset some of the decline. Import decreased 4.3%YoY on lower raw materials import (oil).

Indonesia 4Q22 GDP recorded at +0.36%QoQ/+5.01%YoY beating consensus expectation at +0.35%QoQ/+4.92% respectively. For the full year 2022, GDP expanded 5.31%YoY as compared to +3.69%YoY FY21. Private consumption growth normalized at +4.5%YoY from +5.4%YoY in the previous quarter. Government spending declined by 4.8%YoY in 4Q22 vs +2.6%YoY growth in 3Q22 on lower material and social spending. Export grew by 14.9%YoY while import grew by 6.2%YoY. Investment in machinery, equipment, vehicles, building normalize and resulting Gross Fixed Capital Formation eased to +3.3%YoY in 4Q22 from +5%YoY growth in 3Q22

4Q22 Balance of Payment turned into a surplus of USD4.7bn from a deficit of USD1.3bn in 3Q22. FY22 Balance of Payment recorded a surplus of USD4bn of 0.3% of GDP. 4Q22 Current account surplus recorded at USD4.3bn or 1.3% of GDP thanks to solid trade surplus of USD17bn, bringing FY22 current account surplus at USD13bn or 1% of GDP (highest number since 2010). Financial account recorded a smaller deficit of USD 0.5bn in 4Q22 from deficit of USD 5.5bn in 3Q22.

At the beginning of the year, BI increased the 7DRRR by 25bps to 5.75%, inline with expectation. The central bank kept policy rate unchanged at 5.75% on the next meeting. BI believed that the current level of policy rate was sufficient to keep core inflation within the target range of 3 ±1% in the first semester 2023 and return headline inflation to the target rage in second semester 2023. The central bank also improved FY23 outlook more towards to the upper end of 4.5-5.3% range (i.e. 5.1%) supported by China recovery and solid domestic household consumption. February FX reserve increased to USD140.3bn from 139.4 in January. The increase was supported by fiscal revenue and external loan withdrawal. March inflation recorded at +0.18%MoM/+4.97%YoYvs previous month reading at +0.16%MoM/+5.47%YoY. The inflation was driven by food, beverages and tobacco with +6.1%YoY increase and transportation at +13.7%YoY. Core inflation decelerated to +2.94%YoY from +3.0%YoY in February.


Local Market

JCI declined 0.7% QoQ to 6,805 with around Rp6.6tn net foreign buy. The index volatility was still driven by external factors. During the quarter, the index 2 times declined to 6,550-6600 range due to 1) rotation flow to China market on reopening theme and 2) foreign risk off due to regional banking stress. The index rebounded as macro condition was stable, valuation was undemanding, and earnings results were solid. The best index performer was IDXTransportation (+7.7%) led by shipping and ground transportation companies on robust economic activities. The worst index performer was IDXEnergy (-7.7%) with declining coal price from USD 350/mt at the end of 2022 to around USD191/mt at the end of 1Q23.

Global Market

For the 3 months period, the US equity market mixed DJIA 33,274.15 (+0.4%); S&P500 4,109.31 (+7.0%); Nasdaq 12,221.91 (+16.8%). The US indices booked a positive performance at the beginning of the year as job data and wage growth cooled, indicating that Fed's effort to slow down the economy and taming inflation was working. US 4Q22 GDP grew by 2.9%QoQ vs consensus expectation at +2.8%QoQ and 3.2%QoQ growth in 3Q22. Stocks retreated as January inflation and employment data were solid thus sparking concern that the Fed to remain hawkish and high rate will stay for longer. US January inflation increased 0.5%MoM/+6.4%YoY vs consensus expectation of +0.5%MoM/+6.2%YoY. US January retail sales rose 3%MoM vs expectation of 1.9%. January core personal consumption expenditures increased 0.6%MoM/+4.7%YOY vs expectation of +0.5%MoM/+4.4%YoY and previous month reading at +0.4%MoM/+4.6%YoY. US indices plunged at the beginning of the March as Fed Reserve Chairman mentioned to the congress that the level of interest rate was likely to be higher than previously expected on stronger than expected recent economic data. US February nonfarm payroll increased by 311k vs 225k estimates and January number of 504k. Silicon valley bank share price tumbled as the bank looked to raise more than USD2bn capital to cover the losses from its bond sales. Regional banks, that focused the business on technology business, share prices plunged on concern that the banks to walk the same path as SVB’s. Nasdaq outperformed DJIA & SnP as investors bought technology stocks on speculation that the Fed to be less hawkish on the March meeting. US February inflation increased 0.4%MoM/+6%YoY, inline with consensus estimates, and was slightly lower than January figure of +0.5%MoM/+6.4%YoY. Core inflation increased by 0.5%MoM/+5.5%YoY. The Fed hiked rate by 25bps, inline with expectation to 4.75-5% range. Stocks rebounded at the end of the month as the market perceived that the impact form the previous regional banking stress would be manageable.

Asian market mostly gained with NIKKEI 28,041.48 (+7.5%); Hang Seng 20,400.11 (+3.1%); Shanghai Comp 3,272.86 (+5.9%); Straits Times 3,258.90 (+0.2%); FTSE Malay KLCI 1,422.59 (-4.9%); KOSPI 2,476.86 (+10.8%).China Premier Li Keqiang's government work report showed a GDP target of around 5% FY23. CPI was targeted at 3%, unemployment at 5.5%, fiscal deficit at 3%, defense spending at +7.2% increase. China March Composite PMI rose to 57 from 56.4 in February. Manufacturing PMI fell to 51.9 from 52.6 in February while non manufacturing PMI rose to 58.2 from 56.3 in February. China February CPI decelerated at +1%YoY from +2.1%YoY growth in January. Its Producer Price Index declined 1.4%YoY vs -0.8%YoY in January. The first 2 months retail sales increased 3.5%, inline with expectation. People's bank of China cut the reserve requirement ratio by 25 bps (except that have implemented a 5% reserve ratio) effective march 27. The central bank believed the policy will keep liquidity ample and support the economy. China kept its one-year and five-year loan prime rate unchanged at 3.65% and 4.3% respectively. Japan February manufacturing PMI fell to 47.7 from 48.9 in January. Japan February inflation softened to +3.3% vs +4.3% in January. Core inflation fell to 3.1% from its peak at 4.2% in January. Japan 4Q22 GDP increased by 0.6%YoY which rebounded from -1%YoY growth in 3Q22 yet lower than expectation of +2%YoY growth. BoJ board member Naoki Tamura mentioned that it would be appropriate to maintain current ultra-dovish monetary stance. South Korea 4Q22 GDP declined by 0.4%QoQ dragged by 5.8% decline in export, 4.1% drop in manufacturing and 0.4% contraction in private consumption. South Korea inflation moderated to +4.8%YoY in February from +5.2%YoY in January; it was the first time in the past 10 months inflation recorded below 5%. South Korea February PPI rose 4.8%YoY, slower than January figure of +5.1%YoY. Bank of Korea kept the rate unchanged at 3.5%. The central bank expected the economy to grow by 1.6% FY23. Singapore GDP grew by 3.6%YoY FY22 from +8.9% growth in FY21. The trade and industry minister forecasted FY23 GDP growth at range 0.5-2.5%. The minister expected travel and tourism sector to improve while export oriented sector to remain weak from slowdown in global economy. The Monetary Authority of Singapore projected FY23 inflation to come at range 5.5-6.5% while core inflation forecasted at 3.5-4.5%. Singapore January CPI increased 6.5%YoY/+0.2%MoM.India 4Q22 GDP grew by 4.4% lower than consensus estimate of +4.6% which was mainly dragged down by lower growth in private spending. India February PMI booked at 55.3 vs consensus expectation at 54.3 and previous reading at 55.4

European market rebounded with FTSE 7,631.74 (+2.4%); CAC 7,322.39 (+13.1%); DAX 15,628.84 (+12.2%). Stocks gained as inflation was slowing. Euro zone March inflation decelerated to +6.9%YoY vs +8.5%YoY in February as energy prices declined. However, core inflation still accelerated at +5.7%YoY from +5.6%YoY in February. ECB hiked rate by 50bps to 3% as inflation was projected to remain high for too long. Euro zone GDP grew 0.1%QoQ in 4Q22 vs consensus expectation of -0.1%QoQ and +0.3%QoQ growth in 3Q22. Euro zone February PMI booked at 52.3, the first reading above 50 since mid of last year. Stronger PMI was supported by service PMI with 53 reading while manufacturing PMI was still below 50 i.e. 48.5. A similar reading was seen in France and German market. In the middle of March, the indices volatility increased which was led by losses in Banking and Energy sector. European banking stocks fell on news that HSBC to buy the British arm of SVB. Credit Suisse share price plunged after Saudi National Bank ruled out further financial assistance. UBS agreed to buy CS for USD3.2bn; CS shareholder to receive 1 UBS share for every 22.48 CS shares. The Swiss National Bank pledged a loan support up to USD108bn for the takeover. UK economy grew by 0.3%MoM in January vs expectation of 0.1% monthly increase. British Finance Minister Jeremy Hunt mentioned that the UK economy would not enter technical recession in 2023 as was previously anticipated. The Office of Budget Responsibility now forecasted FY23 GDP growth at -0.2% from -1.4% in FY23. Inflation was expected to fall by 2.9% by the end of 2023. BoE hiked rate by 25bps to 4.25%. UK February inflation rose 10.4%YoY vs consensus expectation at +9.9%YoY and previous reading at +10.1% in January.

Equity Outlook & Strategy

We remain cautiously positive on equities as Indonesia still offers solid fundamentals from both macro and corporate earnings sides. However, we expect continuing volatility in the market following global recession fears on the back of higher inflationary environment, hawkish central banks, and geopolitical situation. Recent Fed statement turned market more cautious as it indicated that rates would still need to go up. Though ongoing concerns on the US and Europe banking issues may force central banks to turn more dovish. The banking crisis also became a major cause of volatility in the market since mid-March. The Rupiah has rebounded thanks to recent export proceeds repatriation regulation issued by Bank Indonesia and resilient trade surplus. Though we need to continue to monitor the currency’s fluctuation.

The collapse of Silicon Valley Bank (SVB) and Credit Suisse were the major talks of the market in March. As a result equity markets globally were shaken including Indonesia. However, the Indonesian market rebounded as fundamentally the impact from the banking crisis to Indonesia is limited to sentiments. Indonesian banks are sitting at much higher average CET1 CAR of 26.6% compared to US banks at 10.8%. Moreover, Indonesian banks’ holdings to hold to maturities securities is also lower. Hence, the Indonesian banks should be more defensive in the capital front while exposures to risky assets are also much less. We think that the ongoing talks and concerns from the banking crisis would continue to cause volatility to the market though more due to sentiments and, hence, would only be temporary.

Indonesia still has solid domestic fundamentals with resilient and strong trade surplus. Lower oil price may help cushion the impact from declining coal price in terms of trades. GDP growth is also expected to remain resilient with consumption picking up while inflation is relatively benign. Corporate earnings growth ex-commodities is expected to remain strong according to Bloomberg consensus. Meanwhile, valuation has fallen to about 13x PE compared to historical level at 15-16x PE. Therefore, should there be volatility in the global market, Indonesia would remain to be among the safe haven in the equity market which would help drive back foreign fund flow back to Indonesia.


Indonesia 10 years government bond yield decreased by 14.7bps to 6.793%. The US 10-year treasury note decreased by 40.6bps to 3.473%. At the beginning of the quarter, UST 10-year declined to 3.34% level as Mr. Powell commented that disinflationary process has started. However the yield spiked up as US nonfarm payroll data turned strong and above expectation. Additionally, the yield climbed on persistently high inflation and rebound in retail sales thus sparking concern that the Fed to remain hawkish.The UST 10-year yield topped 4% (first time since November 2022). The US treasury yield dropped as shutdown of Silicon Valley Bank caused investors to flock to safer assets. UST yield declined further after Fed meeting with 25bps hike; 10 out of 18 FOMC members, based on dot plot, expected only one more hike by the end of this year. FFR projection by end 2024 rose to 4.3% from 4.1% and expected to fall to 3.1% FY2025. Based on DMO bond flow data as of 30 Mar, Foreign ownership recorded at 14.9% of the outstanding and inflow of Rp54.1tn YTD. Indonesia 10 years USD global bond yield at 4.66%. IDR depreciated by 3.68% to 14,995.

Fixed Income Outlook & Strategy

Higher inflation and rising interest rates remain as challenges to the bond market though we think that the negative sentiments have been mostly priced in reflected by the large foreign outflow in 2022. We think that low foreign ownership of government bonds at about 15% would limit downsides in the bond market. Hence, should market get corrected and yield jump up, foreign investors may look to re-enter at attractive entry points. The bond market has seen some recovery driven by foreign investors towards the end of 2022. However, we have seen correction since February due to profit taking and concerns on the US banking crisis. We think there may be some volatility in the short term, however, outlook for the bond market should be better for the remaining of the year on the back of ending rate hike cycle.

Domestically, Indonesia fundamentally remain solid with strong trade balance and improving fiscal position. Hence, most concerns are coming from overseas with the SVB and Credit Suisse collapse as well as uncertainties surrounding Fed’s policies. Valuation wise, Indonesia remain expensive, but we think it is warranted as structural changes in Indonesia has made the Rupiah strong amidst global uncertainties. Consensus also seems to indicate Fed pivot point to be slightly lower than originally anticipated. Additionally, inflation in Indonesia remains benign and stable which we think will prompt Bank Indonesia to maintain its policy rate. We think, however, bond market will remain volatile in the short term concerns on Fed tightening ease down.

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