Macroeconomics
The government lifted the fuel price as oil price and consumption was elevated; yet allocated more subsidy budget for low income family. 8M22 state budget recorded a surplus of Rp107.4tn or +0.6% of GDP. August trade surplus recorded at USD5.76bn. BI increased rate by 50bps (higher than consensus expectation at 25bps) to 4.25% as a pre-emptive move and front loading on rising inflation and strengthening dollar. September inflation increased 5.95%YoY/+1.17%MoM.
Equity
JCI declined by 1.9% in the past one month with around Rp 3tn net foreign buy. During the month, JCI recorded a new high at 7,377 supported by strong trade balance and manageable inflation. Index rally was lifted by foreign inflow that appreciated Indonesia’s solid economic amid global rout. Foreign took profit and became a net seller at the last week of the month as IDR depreciated to 15,250 level against USD. Only 2 sectors booked positive monthly performance: IDXHealthcare (+4.3%) and IDXEnergy (+1.1%) as investors turned defensive and looked for proxy of higher commodity prices and stronger dollar. The worst performer was IDXTechnology (-11%) on higher interest rate environment.
The global market plunged as countries were battling with high inflation and higher policy rate. Some central banks and the market cut the growth projection amid this tightening cycle. DXY appreciation pressured other currencies and led to correction in global stock and bond 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. Pressure on the IDR may also add pressure 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 increased by 24.6bps to 7.373% compared to the previous month. In comparison, the US 10-year treasury note increased by 63.1bps to 3.829%. Fed hiked rate by 75bps to 3-3.25%, the Fed has increased 300bps YTD. Most FOMC participants expected further increase in FY22 to 4.25-4.5% (median forecast at 4.4%) and another 25bps increase to 4.5-4.75% (median forecast of 4.6%) FY23. Indonesia 10 years USD global bond yield at 5.22%. IDR depreciated by 2.76% to 15,253 vs USD.
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. However, inflationary risks would also limit upside at this juncture, thus, we do not expect any major rally in the bond market in the short term.
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