Market Commentary - Q4 2020

Macroeconomics

Inflation remained soft in 4Q20 at 1.68% YoY as of December. Weak domestic demand still put pressure on imports. However, imports contraction have started to narrow in the quarter while exports growth turned positive in November, hence, Indonesia recorded trade surplus of about USD19.5bn as of November. As of November, the government has recorded budget deficit of 5.60% of GDP with spending picking up while revenue lagged. Forex reserve fell from USD137bn to USD134bn in 4Q20. Bank Indonesia cut its policy rate by 25bps in November to 3.75%. The Rupiah closed at IDR14,050/USD by the end of December following strong rally of 5.7% QoQ as foreign booked massive inflow into the bond market during the quarter.

 

Equity

JCI index spiked in 4Q20 booking return of 22.8% QoQ. Foreign booked an overall net outflow of USD285mn in 4Q20. The quarter started strong with the earlier than expected passing of the Omnibus Law which propelled the JCI index though supported by mostly local investors. Foreign investors started to flock into the equity market in November after Biden was announced victorious at the US election. Further positive news on vaccine development also boosted the JCI index during the quarter. The market faced some turbulences on rising COVID-19 cases globally which caused some hiccups towards the end of the quarter.

Global equity market performed well in 4Q20 on the back of Joe Biden’s victory at the US election and positive development on vaccines. The US congress has also approved the much awaited fiscal stimulus package with combined value of USD2.3tn towards the end of the quarter. With more vaccines approved by the FDA, the US and the UK have also started their vaccination program amidst rising COVID-19 cases in the year-end.

 

Fixed Income

Fixed Income performed strong in 4Q20 as the 10-year government bond yield fell from 6.9% to 5.9%. The bond market posted foreign inflow of USD2.8bn in 4Q20. The bond market was driven by positive sentiments from the passing of the Omnibus Law, Biden’s victory at the US election, and positive newsflow on vaccine. Hence, foreign investors turned risk-on and flocked into IndoGB during the quarter. There were some volatility occurring due to the rising COVID-19 cases globally towards the end of the quarter. Meanwhile, the US Treasury yield rose to 0.92% while the INDON30 yield fell from 2.3% to 1.9%. Hence, spread between the US Treasury and INDON30 yield narrowed.

 

Disclaimer

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