Highlight Monthly Commentary - July 2021

Macroeconomics

July inflation was booked at 1.52% YoY where on a monthly basis inflation was booked at 0.08% MoM driven by food, education, and healthcare related inflations. June trade balance remained positive albeit narrower at USD1.3bn due to stronger imports. Budget deficit reached 1.72% of GDP as of June. Forex reserve rose to USD137.1bn in June while Bank Indonesia maintained its policy rate at 3.50% during the month.

Equity

 JCI index posted slight positive return in July of 1.4% MoM. Foreign investors posted inflow of USD67mn in July. The market faced volatility in the month of July due to the new wave of Covid-19 in Indonesia where cases and infection rates reached new records while the government implemented stricter mobility restrictions. However, sentiments improved as Indonesia seems to have passed the peak and showed improvements in terms of daily cases. Meanwhile, the Fed remained dovish and accommodative with its policies in the last FOMC meeting.

Global equity market posted mixed returns in July. The US market recorded positive returns on the back of softer inflation concerns and solid vaccination progress. The European continued to post positive returns as economy reopening and vaccination progress well in the region. The Asian markets were under pressure due spread of Delta variant of COVID-19 in the region while China market was facing a sell-off due to government tightening in its private sector.

In the long term on the equity market is backed by ongoing reforms, attractive valuation, and potential additions of new economy stocks in the market. We need to continue to monitor the current Covid-19 conditions in Indonesia as we are seeing improvements with cases and infection rates seemingly passing its peak. We also need to monitor statements from the Fed on any signs of taper talks.

Fixed Income

Fixed Income market’s performance was positive in July as the 10-year government bond yield fell from 6.56% to 6.29%. The bond market posted foreign outflow of USD592mn in July. Despite the new wave of COVID-19 infections in Indonesia, the bond market performed well supported by stronger auction demand, dovish Fed statements, and expectations of easing US inflation. Meanwhile, government’s plan to trim issuance also help give positive sentiments to the bond market. Meanwhile, the US Treasury yield fell to 1.23% while the INDON31 yield closed at 2.14%.

We think that US inflation should start to peak soon which would ease volatility surrounding the US Treasury yield as well as giving time for the Fed before actually conducting tapering. However, lack of catalysts, fiscal headwinds, and resurgence of COVID-19 cases may cause volatility and limit upsides at this juncture.

Disclaimer

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