Schroders Indonesia Monthly Market Recap & Commentary – November 2022

09/11/2022

Macroeconomics

Indonesia 3Q22 GDP increased by +1.81%MoM/+5.72%YoY. 10M22 state budget recorded a deficit of Rp169.5tn (-0.91% of GDP) from a surplus of Rp60.9tn in 9M22. October trade balance recorded a surplus of USD5.67bn vs USD5bn in Sept22. BI hiked policy rate by 50bps to 5.25%, inline with consensus expectation. Indonesia November inflation recorded at +0.09%MoM/+5.4%YoY.

Equity

JCI was relatively flat with 0.2%MoM decline amid Rp735bn net foreign buy. The index was moving at a limited trading range for the month. The market was supported by positive news flow from solid 3Q earnings, stronger than expected 3Q GDP yet pressured by global issues and strengthening USD. IDXProperty (+3.5%) was the best index performer on solid marketing sales and improving sentiment on lower bond yield. IDXFinancial (+0.5%) was worth to mention as many of the big cap banks rallied and reached new high but the sector was dragged down by the digital bank. The worst performing sector was IDXTechnology (-8.6%) driven by one of the largest tech counters in which the IPO lock up expiry was ending in November.

Majority of the global indices recorded a positive. The western market cheered slowing inflation and indication that the fed was going to reduce the pace of upcoming FFR hike. The Chinese stock market rallied as the country eased its zero covid policy and continued to support the property market.

We remain cautiously positive on equities as the fundamental reform and recovery story remains intact. However, we expect continuing volatility in the market following global recession fears on the back of higher inflationary environment and geopolitical situation. Despite higher inflation from fuel price hike, cash handouts from the government is expected to support consumption. We see pressure on the IDR may also blow headwinds to the equity market though we think that Bank Indonesia may come in and give support when necessary.

Fixed Income

Indonesia 10 years government bond yield decreased by 59.8bps to 6.939% as compared to the previous month. In comparison, the US 10-year treasury note decreased by 35.5bps to 3.655%. The Fed hiked rate by 75bps, for the fourth consecutive increase, to a range of 3.75[(-4) was not found] which was the highest level since January 2008. Treasuries yield plunged on softer than expected inflation and the street expected the pace of FFR hike would be slower in the coming months. The yield declined further as Fed Nov minutes indicated that slower rate hike to come.

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 YTD. One risk is the fact that banks may start to grow their loan once again as the economy recovers, hence, reducing the needs for them to keep government bonds as reserve. We think that low foreign ownership of government bonds at about 14% would limit downsides in the bond market.

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