Schroders Indonesia Monthly Market Recap & Commentary – June 2023

JCI rose by 0.43% MoM to 6.661 amid almost Rp4.4tn net foreign sell in June 2023. The concern over hawkish stance and the potential of further rate hikes this year by the Fed dampened the appetite as investor were more on the risk-off mode. However, foreign inflow still booked a net buy around IDR16.23tn YTD which mainly went to the big cap blue chips. Indonesia 10 years government bond yield decreased by 20 bps to 6.243% during the month on the back of solid fundamental, lower inflation and relatively stable currency. Watch the video and read more on the report below.



Indonesia trade balance reported a slight surplus of USD 0.44bn in May 2023 (vs. USD 3.9bn in Apr 2023 and vs. consensus forecasts at USD 3.1bn). Despite it being the smallest surplus since Oct 2019, Indonesia’s trade balance continuing its surplus for 37 months straight. Imports surged +14.35% YoY vs. -22.32% in April with capital goods import increased the most. Exports in May 2023 also increased, up +0.96% YoY (vs. -29.4% in April) due to non-oil and gas (NOG) export that increased by 1.94% YoY.

Indonesia Consumer Confidence Index May 2023 was 128.3, the highest in 12 months. The consequent increase YTD is coming from labor market, inventory and business expectation.

Bank Indonesia maintained its policy rate unchanged at 5.75% for the fifth time, in line with market expectation. The decision to maintain BI7DRR is consistent with the monetary policy stance to control core inflation within the 3.0% ±1% for FY23 and BI continued to emphasize exchange rate stability and managing imported inflation, especially amid rising global uncertainties, including a potential rate hike by the Fed next month. BI also reiterated to utilize FX intervention to help promote stability.

Based on the APBN Kita Press Conference, the state budget recorded a surplus of Rp204.3tn in May 2023 (+0.97% of GDP) vs. surplus of Rp132.2tn or +0.71% of GDP in Apr 2022 and vs. +1.12% of GDP in Apr 2023. Despite slowing commodity prices and the global growth outlook, government revenues still increased by 13% YoY, and the realization to FY target was 49.1%. Government spending realization also increased by 7.1% YoY or 32.8% of the FY target. The Ministry of Finance expressed her optimism on the economic growth target of 5.0-5.3% FY2023.


JCI rose by 0.43% MoM to 6,661 amid almost Rp4.4tn net foreign sell. The concern over hawkish stance and the potential of further rate hikes this year by the Fed dampened the appetite as investor were more on the risk-off mode. However, foreign inflow still booked a net buy around IDR16.23tn YTD which mainly went to the big cap blue chips. IDX Transportation and Logistic & IDX Sector Financials booked the biggest increase of 4.13% and 3.61% MoM respectively driven by improved traffic & economy activities in Indonesia and solid fundamental of Indonesia banking sector. The only sector that booked negative return MoM was IDX Sector Technology -6.38% MoM due to profit-taking activities by investor on one tech giant after their strong performance in May. In addition to that, the hawkish signal given by Powell to reduce inflation to the target of 2% and opened up the possibility for further interest rate hikes until the end of 2023.

DJIA 34,407.6 (+4.6%); S&P 500 4,450.4 (+6.5%); NASDAQ 13,787.9 (+6.6%). US equities wrapped up the month strong with the recession feared many investors seems further away than anticipated. Additionally, technology stocks lifted the index on the back of newfound excitement for the sector— the surge was partly by the rise and development of artificial intelligence. May CPI Inflation slowed to 4% YoY vs 4.9% YoY in April; the slowest since March 2021. PPI Inflation fell to 1.1% YoY, below expectations of 1.5% YoY. The Fed kept interest rate unchanged, marked the first pause in the tightening campaign following 10 consecutive hikes. Powell stated some hawkish statements in the semiannual testimony to Congress as reaffirmed that more rate hikes are likely as inflation remains ‘well above’ where it should be. First-time filings for unemployment benefits was 264,000 for the week ended Jun 17 based on the Labor Department; above the 256,000 estimate from Dow Jones and indicating initial softening in the labor market. The US economy grew by 2% in Q1 2023, well above the  forecasts of 1.4%. Consumer spending growth accelerated to 4.2% marked the strongest number in nearly two years (vs. 3.8% in the second estimate) despite stubbornly high inflation. The personal consumption expenditure (PCE) price index rose 3.8% YoY in May 2023, the lowest reading since April 2021.

NIKKEI 30,887.88 (+7.0%); Hang Seng 18,234.27 (-8.3%); Shanghai Comp 3,204.56 (-3.6%); Straits Times 3,158.8 (-3.4%); FTSE Malay KLCI 1,387.12 (-2.0%); KOSPI 2,577.12 (+3.0%). South Korea May inflation decelerated to +3.3%YoY from +3.7%YoY in April; it was the slowest increase since October 2021. Exports from South Korea fell 6% YoY to USD 54.24 billion in June 2023, following a 15.2% plunge in the previous month, worse than market expectations of a 3% drop as the weak sales of semiconductors, the country's key export items (-28%). Bank of Thailand increased the policy rate by 25bps to 2%, a sixth consecutive increase, due to stubbornly high core inflation. Japan 1Q23 economy grew by 2.7% vs consensus expectation of +1.9% growth. The Bank of Japan held their short-term interest rate target at -0.1% and made no changes to its yield curve control policy, in line with consensus expectations. Japan’s core inflation in May eased to 3.2% YoY vs. 3.4% in April and consensus expectation of 3.1%. This inflation rate is still above the BOJ’s target of 2%. Japan manufacturing activity fell as June manufacturing PMI recorded at  48.4 compared to May’s 50.9. China May export fell 7.5%YoY vs expectation of -0.4%YoY while import declined by 4.5%YoY vs expectation of -8%. China May PPI declined by 4.6%YoY vs -3.6%YoY decline in April. CPI increased -0.2%MoM/+0.2%YoY. China unemployment rate for young people ages 16 to 24 rose to 20.8% in May, a record and above the high set in April, retail sales for May rose by 12.7% YoY, below expectations for 13.6% growth forecast by a Reuters poll. China’s economic momentum is still quite weak as the manufacturing PMI came in 48.8 in May and 49.0 in June 2023 – contracted for a third straight month and the non-manufacturing PMI came in at 53.2 in June 2023, weakest this year to date. Singapore inflation rate slowed to 5.1% in May, lowest since March 2022. Malaysia’s inflation eased for third straight month to 2.8%.

FTSE 100 7,531.5 (+1.2%); CAC 40 7,400.1 (+4.3%); DAX 16,147.9 (+3.1%). Eurozone May inflation growth slowed to +6.1% from +7% in the previous month. Core inflation eased to +5.3% from 5.6% in April. ECB President Christine Lagarde said that inflation was still too high and argued the need to continue raising rate until inflation was on track to return to ECB target. The ECB announced a 0.25% raise, bringing the Eurozone's interest rate to 4%.  Euro zone CPI inflation fell to 5.5% in June 2023 vs. expectations of 5.6% and 6.1% in May 2023. The rate hit its lowest level since January 2022, although it remained significantly above the European Central Bank's target of 2.0 percent and core CPI inflation is actually increased to 5.4% from 5.3%. Inflation remains stubborn in Europe. French April inflation cooled to +6%YoY from +6.9% in April. German May CPI growth also decelerated at +6.1%YoY from previous reading of +7.2%. UK economy grew by 0.2% in April after a fall of 0.3% in March, in line with expectations with growth driven by services sector. BoE increased its central rate by 50bps to 5%, above the expectation (prev/cons: 4.5%/4.75) and marked the 13th consecutive hike. UK policymakers pledged to deliver further rate hikes if inflationary pressure upholds. Norway and Switzerland also raised rates by 50 bps and 25 bps respectively to combat the inflation.

Equity Strategy

We expect continuing volatility in the market following global recession fears, noises from the US banking crisis, and geopolitical situation. Meanwhile, from the domestic side, risks from soft domestic demand and upcoming noises from politics are among the ones we need to pay attention to. We are seeing pressure on the Rupiah due to persistent hawkish Fed while our trade surplus started to narrow.

Market are starting to pay closer attention to Indonesia’s domestic economy as the Rupiah seemingly under pressure towards the end of 2Q23. Trade balance still recorded a surplus though narrower than previous months. The easing commodity price was the main culprit of the narrowing surplus though import decline managed to support overall trade balance. Despite so, the weaker import growth also indicates weak domestic demand which was closed flat in 1Q23. We are starting to hear weaker demand in the consumer space while banking loan channeling and growth is also moderating. Hence, we would need to pay more close attention to domestic demand as it will replace net exports as the driver of growth in 2023.

From the global side, in contrast to market’s initial expectations of peaking interest rate hike from the Fed, the central bank indicated that it may raise rate 1-2 more times this year as US labor market remains resilient. The news shook the market as US inflation already showed declining trend. We believe the Fed’s statement were among the cause of the weaker Rupiah in the past month. Hence, we need to closely monitor the Fed’s decision. We think 1 rate hike cause a short market volatility but it may prolong if the Fed increase rates more than once.

Fixed Income

Indonesia 10 years government bond yield decreased by 20bps to 6.243% as compared to the previous month on the back of solid fundamental, lower inflation and relatively stable currency. In comparison, the US 10-year treasury note increased by 24bps to 3.841% in June 2023. Most of the economic releases released in US during the month still pointing to a robust and resilient US economy with solid labor market and slower decline in inflation, which strengthened the forecast of the Fed to raise interest rates going forward thus weaken the bond price.

Fixed Income Strategy

Our channel check also indicated that foreign investors have been showing more interests into Indonesia government bonds compared to other EMs such as China which may indicate further potential foreign inflow into IndoGB. Additionally, excess liquidity is still high in the banking system while deposit rates remain low which would continue to support demand for IndoGB. Retail investors participation continues to grow. However, bond yield is already a tight level at the moment close to 6.5% while Fed still plans to increase rate.

Interest rate movement is key for bond market at the moment as the market is concerned with Fed’s indication of 1-2 more rate hikes. On the other hand, Bank Indonesia seems to be at a likelier position to cut rates as Indonesia’s inflation continues to decline while Rupiah remained resilient. However, if the Fed decides to increase rates then it may push back any potential BI rate cut. The market is paying close attention on whether Bank Indonesia would decouple its policy rate movement from the Fed’s.

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