Macroeconomics

Indonesia 4Q GDP recorded at +0.36%QoQ/+5.01%YoY beating consensus expectation at +0.35%QoQ/+4.92% respectively. January trade surplus recorded at USD3.9bn vs consensus expectation at USD3.5bn. January fiscal recorded a solid revenue collection +49%YoY while expenditure grew 11%YoY. BI kept policy rate unchanged at 5.75% and believed that the current level of policy rate was sufficient to keep core inflation within the target range of 3 ±1%.

Equity

JCI gained 0.1%MoM to 6,843 amid almost Rp5.7tn net foreign buy. Foreign investors returned to JCI on its undemanding valuation and solid macro data. However, the rally halted as local investors took profit when the index moved closer to its psychological resistance at 7,000 level. Some big banks reported better than expected earnings and expected another positive growth in year 2023. The best index performer was IDXTransportation (+10.3%) as economy activities remained robust. IDXConsumerCylical (+2.9%) gained on discretionary spending recovery and benign inflation. IDXEnergy (-3.2%) was the worst performer amid the normalization of energy prices and warmer winter.

The US market was corrected on strong inflation and job data; sparking concern that the Fed would remain hawkish and maintain the higher rate for longer. HSI underperformed its peers as the market took a breather after strong rally in the previous months. The European market outperformed the US market on better than expected inflation number, resilient economic growth, and undemanding valuation.

We remain cautiously positive on equities as Indonesia still offers solid fundamentals from both macro and corporate earnings sides. However, we expect continuing volatility in the market following global recession fears on the back of higher inflationary environment, hawkish central banks, and geopolitical situation. Recent Fed statement turned market more cautious as it indicated that rates would still need to go up. The Rupiah has rebounded thanks to recent export proceeds repatriation regulation issued by Bank Indonesia. 

Fixed Income

Indonesia 10 years government bond yield increased by 19.2bps to 6.899% as compared to the previous month. In comparison, the US 10-year treasury note increased by 40.9bps to 3.914%. At the beginning of the month, UST 10-year declined to 3.34% level as  Mr. Powell commented that disinflationary process has started. However the yield spiked up as US nonfarm payroll data turned strong and above expectation. The yield climbed on persistently high inflation and rebound in retail sales thus sparking concern that the Fed to remain hawkish.

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 in 2022. The bond market has seen some recovery driven by foreign investors towards the end of 2022. Thus, valuation is looking pricy at this juncture. We think there may be some volatility in the short term, however, outlook for the bond market should be better for the remaining of the year on the back of ending rate hike cycle.

Disclaimer

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