Highlight Monthly Commentary - April 2022

Macroeconomics

Indonesia March inflation recorded at 2.64%YoY (vs 2.06% in Feb) / +0.66%MoM. 1Q22 state budget recorded a surplus of Rp10.3tn (vs surplus of Rp19.7tn in 2M22) equivalent to a surplus 0.06% of GDP. Trade surplus recorded at USD 4.53bn vs USD 3.8bn in the previous month. BI kept policy rate unchanged but adjusted its macro forecast. GDP was lowered to 4.5-5.3% from 4.7-5.5% previously while CAD expected to improve to -1.3% to -0.5% of GDP. Indonesia 1Q22 total investment increased 28.5% YoY.

Equity

JCI increased by 2.2% in the past one month with around Rp 41.4tn/16.7tn net foreign buy in all/regular market. The market received plenty of positive sentiment: 1) Consumer recovery as homecoming was allowed by government, 2) Improving macro and trade balance from elevated commodity prices and 3) Stronger than expected 1Q corporate earnings. The best index performer was IDXIndustrial (+10.4%) led by automotive and mining contracting business that benefit from higher commodity price. IDXEnergy (+9.3%) was the second best performer as some European countries, Japan and South Korea utilities companies halted their coal purchases from Russia. IDXHealth (+5%) booked a solid performance as patients were coming back to hospital for the overdue treatment.

Majority of the global indices were corrected on concern of central bank tightening and higher inflation. Technology stocks around the globe were corrected as interest rate was climbing. The Asia market was soft as China continued its zero covid cases policy amid rising cases in some of its cities. IMF cut global growth forecast due to Russia’s invasion.

We remain positive on equities as valuation compared to peer equity markets remains attractive while the fundamental reform and recovery story remains intact. However, we are cautious in the short term due to risk from the Ukraine-Russia tension and potential rise of inflation in Indonesia. Indonesia Government’s stance seems to also be heading towards continuation of reopening and economic recovery.

Fixed Income

Indonesia 10 years government bond yield rose 25bps to 6.99% compared to the previous month. In comparison, the US 10-year treasury note increased by 59.5bps to 2.934%. The bond yield was moving north as inflation was persistently high and the Fed was committed to combat inflation using the policy rate. The US 10 years treasury yield rallied to as high as 2.974% after Mr. Powell stressed the importance of controlling inflation and 50bps hike on the next meeting is "likely". Based on DMO bond flow data as of April 25, foreign ownership recorded at 17.3% of the outstanding and outflow of Rp51.5tn YTD. Indonesia 10 years USD global bond yield at 3.81%. IDR weakened to 14,497.

Higher inflation and rising interest rates would pressure the bond market. We think local investors will be the main supporter of IndoGB in the near term while foreign investors would be in defensive mode as US Treasury yield climbs up.

 

Disclaimer

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