Monthly Market Commentary - November 2021

08/12/2021
Read full reportNov21-Indo Market Commentary-WEB
0 pages88 KB

Macroeconomics

On the biweekly Java-Bali PPKM assessment, Government extended PPKM in Java and Bali until 13 Dec and upgraded 23/8 cities to level 2/1 respectively. Jakarta PPKM status was downgraded to level 2 thus mall capacity is limited to 50% and operating hours until 9pm. The government to impose PPKM level 3 on 24 December 2021 - 2 January 2022 to reduce mobility and prevent potential increase of covid19 cases. At PPKM level 3, maximum capacity is 50% for place of worship, cinemas, restaurants, shopping malls (operate until 9pm) and closure of recreational areas/public facilities. Additionally, government to prohibit civil servant, army, police, and private employees to take leave during year-end holiday. The government increased the quarantine period for overseas travellers to 7 days from 3 days and required 14 days from A list countries (South Africa, Botswana, Namibia, Zimbabwe, Lesotho, Mozambique, Malawi, Angola, Zambia, And Hong Kong) as a response to new Covid19 variant Omicron. The 7DMA national infection rate remained stable at 0.2% and active case below 8k cases.

Indonesia 3Q21 GDP was recorded at +3.5%YoY vs +7.1% in 2Q21. The slowdown was expected as the second wave Covid19 ravaged the nation. Among GDP component, private consumption decelerated the most at +1.03% in 3Q21 vs +5.96% in 2Q21. Interestingly, machinery demand was solid with double digit growth, which may indicate an expansionary mode in the coming quarters.

Indonesia Fiscal 10M21 realization continued showing an improvement. Total revenue increased 18.2%YoY and tax revenue increased 15.3%YoY. A higher tax revenue growth was supported by +14.6% in manufacturing industry, +25% in trading, +17.8% in communication and IT, and +43.4% in mining sector. As of 10M21, total revenue realization has reached 86.6% of FY21 target. Total expenditure increased 0.8%YoY to Rp 2,058tn and reached 74.9% of FY21 target. Thus, 10M21 budget deficit stood at -3.29% of GDP vs -4.67% in the same period last year

October trade balance recorded another surplus record of USD5.7bn (vs USD4.4bn in September). Export jumped 53%YoY supported by high commodity prices (coal and CPO) as well as iron and steel. Export to China dominated the October performances while export to US and Europe remained high. Total import increased by 51%YoY with demand for capital goods contributed the most (vehicles and machinery accounted for 23% of total import growth). The jump in capital goods import may indicate a higher investment and manufacturing activities as mobility restriction was relaxed. YTD trade surplus rose to USD30.8bn vs USD 16.9bn in the same period last year. 3Q21 Current accounted recorded at a surplus of USD4.5bn or around 1.5% of GDP. As a result, balance of payment recorded surplus of USD10.7bn in 3Q21 due to improvements in both current and financial accounts.

BI kept its policy rate unchanged at 3.5% for 9 consecutive months. BI was optimist on the economic recovery with +3.2%YoY credit growth in October21 vs lowest level this year of -4.1% in March21. The central bank was also optimist for IDR performance next year supported by 1) Improving CAD 2) Stronger economic recovery 3) Attractive spread between SBN and US treasury yield. YTD BI has financed the fiscal budget via primary issuance and greenshoe options amounting to Rp143tn. BI maintained its inflation target at range of 3±1%.

Indonesia October consumer confidence index rose to 113.4 from 95.5 in September. BI mentioned that almost all spending segment from various regions booked an increase. The improvement was attributed to PPKM relaxation, higher vaccination rate and more economic activities.

Equity

Local Market

JCI declined by 0.9%MoM with Rp3tn/1tn outflow in all/regular market. The index reached its all times high at 6,754 during the month on a series of positive news flow from improving macro data to manageable covid condition in the country. However, the index reversed its course at the end of the month on profit taking as well as concern on new Covid19 variant with numerous mutations. The best performing sector was IDXTrans (+23.3%) lead by shipping company that enjoyed a surging demand as economy resumed. The second-best performer was IDXEnergy that was supported by high commodity price ahead of winter season. IDXHealth (+3.7%) had a rally on the last week of the month as investors turned into defensive names upon discovery of the new variant. IDXProperty (-5.7%) was the worst performer, dragged down by POLL (-39%) and some profit taking seen in mall operators.

Global Market

DJIA 34,483.72 (-3.7%); S&P 500 4,567 (-0.8%); NASDAQ 15,537.7 (+0.3%). The US indices had a good run at the beginning of the month with solid job data, strong US retail sales and signing of USD 1tn infrastructure spending bill. The sentiment was further lifted as majority of S&P500 companies reported a better-than-expected 3Q21 earnings result. However, as WHO labelled omicron as variant of concern, investors reduced their position and some switched into growth names as opposed to cyclical or value stocks. The market was cautious as Moderna CEO expected that the existing vaccines to be less effective against the new variant. The Fed chairman sent a hawkish tone with potential faster tapering amid the discovery of new covid19 variant. Mr Powell saw that faster tapering was warranted as the economy was strong and inflation pressure is high.

NIKKEI 27,821.8 (-3.7%); Hang Seng 23,475.3 (-7.5%); Shanghai Comp 3,563.9 (+0.56%); Straits Times 3,041.3 (-4.9%); FTSE Malay KLCI 1,513.9 (-3.1%); KOSPI 2,839.0 (-4.4%). The HSI was dragged down by banking and tech giants. The Financials and banking stocks went south after BoE decided to keep the interest rate unchanged. FTSE Malaysia KLCI was corrected as government imposed a higher corporate income tax of 33% (from 24%) for companies with income >RM100mn in 2022. China October retail sales improved to +4.9%YoY vs +4.4% increase in September. However, the fixed asset investment declined as the government tightened the property company's reliance on debt for growth. The major tech names declined as some of the companies slashed the revenue guidance on softer economic outlook.

FTSE 100 7,059.5 (-2.5%); CAC 40 6,721.2 (-1.6%); DAX 15,100.13 (-3.8%). Investors were cautious for European market as many countries were battling with rising covid cases and imposed a mobility restriction. Austria’s ATX index performed poorly after the government announced full national lockdown to tame rising covid19 cases. European stocks declined sharpy with travel and leisure stocks dragging the index the most due to concern over a new variant. Rising inflation was another concern as Euro zone November inflation at 25 years record high of 4.9%; pushed by higher energy prices.

Equity Outlook and Strategy 

We continue to be positive on equities for long term as valuation compared to peer equity markets remains attractive while the fundamental reform story remains intact. Potential listings of new economy stocks in the pipeline would also help attract flow into the equity market. Indonesia’s COVID-19 conditions have shown significant improvements and decline in daily new cases, infection rates, and hospital bed occupancy rates while the government plans to gradually ease mobility restrictions. Improving conditions would be a booster for the equity market. However, we must remain cautious and make sure that the condition does not worsen again. At the moment, the world is facing a new covid variant, Omicron, which is said to be more transmissible than Delta. Though studies are still being done regarding the new variant. Hence, we would need to pay attention on the development of the outbreak. We think that strict border control may help prevent large scale mobility restrictions and, hence, avoid economic downturn. China economic slowdown, inflation, and noises on Fed tapering are also risks in the short-to-medium term.

As countries around the world were easing border restrictions, the spread of the new Omicron variant may hinder growth recovery and, thus, the equity market should governments impose strict mobility restrictions again. A number of key data we need to monitor include the variant’s transmissibility, current vaccines’ efficacy against the variant, and the hospitalization as well as mortality rates of the variant. However, we think that the world is more prepared against the new variant this time around as vaccination rates are much higher now compared to back during the Delta outbreak while healthcare providers are more prepared in terms of treatment knowledge and infrastructures. In addition, some countries have already tightened border controls once again especially with regions affected by the new variant. Hence, we think that early measures by the governments would help contain the spread and avoid potential lockdowns. Therefore, we would need to continue to monitor development in the next few weeks. Should the situation escalate we think that there are also possibilities that government and central banks would maintain loose policies to support the economy. Therefore, we think that the equity market’s long term upside would remain intact.

Going into 2022, we need to continue to monitor the inflation in the country as we have seen US inflation spiked since mid-year. Indonesia’s PPI recently has shown growth of 7% YoY while the CPI growth is still below 2% YoY.

Fixed Income

Indonesia 10 years government bond yield inched up by 4bps to 6.1% compared to the previous month. In comparison, the US 10-year treasury note declined by 11bps to 1.45%. Investors reduced their position in riskier assets and flocked back to safe haven US treasury due to concern of the new virus variant. President Biden renominated Jerome Powell to chair the Fed and appointed Lael Brainard as vice chairman. The president applauded Mr Powell's leadership during covid19 crisis and confident that Mr Powell and Ms Brainard would succeed in keeping inflation low, prices stable, and bringing higher employment to make US economy stronger. The Fed chairman sent a hawkish tone with potential faster tapering. Mr Powell saw that faster tapering was warranted as the economy was strong and inflation pressure was high. As of 29 November, foreign posted a net outflow of Rp27.8tn MTD and outflow of Rp52.4tn YTD. Foreign ownership accounted around 20.6% of total outstanding. Indonesia 10 years USD global bond yield at 2.3%. IDR depreciated by 1% MoM vs USD to 14,314.

Fixed Income Outlook and Strategy 

We are neutral in terms of view and duration strategy for fixed income. Stagflation risks would lead to higher inflation and lower growth while interest rates are on the rise, hence, would pressure the bond market. Monetary reversal policies and hefty valuation would limit upside to the bond market at this juncture.

Inflation in the US has been very high and our global economists expect rate hike to be sooner than later. The Omicron outbreak may delay monetary tightening if the concerns escalate, though the risk remains to be seen at this juncture. Inflation is mostly coming from supply side at this juncture due to supply disruption and high commodity prices. In the US, both fiscal and monetary policies both were injecting money to the banking system in the past year. Hence, there was a demand explosion as people have more money. Meanwhile, supply is struggling to catch up in the medium term. Hence, the spiking inflation. In addition, the trajectory is still gaining momentum in the next few months, hence, it is possible for inflation to reach 7% YoY. Bank of England has also started to get hawkish.

Disclaimer

INVESTMENT IN MUTUAL FUND CONTAIN RISKS, PRIOR TO INVESTING IN MUTUAL FUND, INVESTOR MUST READ AND UNDERSTAND THE FUND PROSPECTUS. PAST PERFORMANCE DOES NOT INDICATE FUTURE PERFORMANCE.

This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can goes down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable, but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  PT Schroder Investment Management Indonesia, 30th Floor IDX Building Tower 1, Jl. Jend. Sudirman Kav 52-53, Jakarta 12190, Indonesia. PT Schroder Investment Management Indonesia is authorised as Investment Manager and supervised by Indonesia Financial Services Authority (OJK).

Read full reportNov21-Indo Market Commentary-WEB
0 pages88 KB

DISCLAIMER

INVESTMENT IN MUTUAL FUND INVOLVES RISK. PRIOR TO DECIDING TO INVEST, PROSPECTIVE INVESTORS MUST READ AND UNDERSTAND THE FUND PROSPECTUS. PAST PERFORMANCE DOES NOT GUARANTEE / INDICATE FUTURE PERFORMANCE.

The views and opinions contained herein are those of the author(s) on this page and are not necessarily represent views expressed or reflected in other Schroders’ communications, strategies or products. This material is intended to be for information purposes only and is not intended as promotional material in any respector offer or solicitation for the purchase or sale of any financial instrument. This material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations [and also may not be circulated, published, reproduced or distributed to any other person without our prior written consent]. Reliance should not be placed on the views and information in this material when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can goes down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Some information quoted herein was obtained from external sources we consider to be reliable. Information herein is believed to be reliable, but Schroders does not warrant its completeness or accuracy. No responsibility both directly and indirectly can be accepted for errors of fact obtained from third parties or negligence of or loss resulting from the use of this material. The data disclosed in this material may change according to market conditions. If any regions/sectors are shown in this material, such data is for illustrative purposes only and should not be viewed as a recommendation to buy/sell. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know and include some forecasted views. However, there is no guarantee that any forecasts or opinions disclosed in this material will be realised. These views and opinions herein are our current views and may change without notice. Nevertheless, this disclaimer does not exclude any duty or liability that Schroders has to its customers under the prevailing laws and regulations in the Republic of Indonesia. PT Schroder Investment Management Indonesia, 30th Floor Indonesia Stock Exchange Building Tower 1, Jl. Jend. Sudirman Kav. 52-53, Jakarta 12190, Indonesia. PT Schroder Investment Management Indonesia as an Investment Manager is licensed and supervised by the Indonesian Financial Services Authority (OJK).

Topics

Follow us

Please ensure you read our legal important information and fraud alert before visiting the rest of our website.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Issued by PT Schroder Investment Management Indonesia, 30th Floor IDX Building Tower 1, Jl Jend Sudirman Kav 52-53, Jakarta 12190, Indonesia. Phone: +62 21 2965 5100

PT Schroder Investment Management Indonesia is licensed and supervised by the Indonesian Financial Service Authority (OJK).

Always be cautious when purchasing investment products. Only subscribe to Schroder Indonesia mutual funds through our distribution partners.  Contact us at +6221 – 2965 5100 and read the fraud alert here.