Highlight Monthly Commentary - May 2022

Macroeconomics

Indonesia 1Q22 GDP booked at 5.01%YoY. Private consumption picked up by 4.3%YoY vs 3.6%YoY in 4Q21 despite omicron wave in 1Q22. Indonesia 4M22 fiscal recorded a surplus of Rp103.1tn (0.58% of GDP) and was accelerated compared to a surplus Rp10.3tn in 3M22. Indonesia 1Q22 BoP recorded a deficit of USD 1.8bn vs 4Q21 deficit of USD 0.8bn. BI kept the policy rate unchanged at 3.5%. The central bank to increase the Reserve Requirement Ratio (RRR) by 100bps to 6% in June 2022, 150bps each in July and September 2022 to 9%.

Equity

JCI declined by 1.1% in the past one month with around Rp 3.5tn net foreign sell. The index was deeply corrected after the Hari Raya holiday due to foreign pressure. The global concern on central bank tightening, persistently high inflation and higher global political tension triggered the investor to took profit in Indonesia market. The market slowly recovered and trimmed its losses as Indonesia macro data continued to be solid, no jump in covid cases and CPO export ban was lifted. The Best Index performer was IDXTransportation (+21.8%) as economic activity resumed and mobility was higher. IDXEnergy (+8.1%) posted a solid performance lifted by high coal prices amid the geopolitical tension.

The global indices mixed with the western market concerning on inflation while the China market was cautious on growth slow down due to covid. High energy prices and employee cost has taken a hit to corporate earnings. The oil price was climbing as EU was preparing a plan of Russian oil ban.

We remain positive on equities as the fundamental reform and recovery story remains intact. However, we are cautious in the short term due to risk form the Ukraine-Russia tension and potential rise of inflation in Indonesia. Any additional sanctions on Russia may add global inflationary pressure and risk to derail growth. Covid cases are more manageable in Indonesia at the moment with lower hospitalization and mortality rates compared to during the Delta outbreak.

Fixed Income

Indonesia 10 years government bond yield increased 5bps to 7.04% compared to the previous month. In comparison, the US 10-year treasury note decreased by 8.1bps to 2.853%. The US treasury yield declined after the inflation data was announced; the street saw that inflation was peaking despite it was higher than expectation. Fed minutes showed that the officials were planning to increase the policy rate by 50bps each in the next couple of meetings. Based on DMO bond flow data as of May 27, Foreign ownership recorded at 16.5% of the outstanding and outflow of Rp100.1tn YTD. Indonesia 10 years USD global bond yield at 3.92%. IDR slightly weakened to 14,581.

Higher inflation and rising interest rates would pressure the bond market. In addition, the current tension in Ukraine may push up commodity price and inflation. We think local investors will be the main supporter of IndoGB in the near term while foreign investors would be in defensive mode as inflation risk remains.

 

Disclaimer

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