Weekly Market Commentary

Weekly commentary (16 – 20 November 2015)

Last week, JCI Index closed higher by 88 points to 4,561 or up by 2% WoW and index movers are HMSP, GGRM, UNVR, ASII, PGAS, TLKM, and BBRI. Sectors that outperformed the index are Infrastructure Sector, Basic Industries Sector, Consumer Goods Sector, as well as Finance Sector. Foreign investors once again recorded a net sell of IDR 518 bn along the week and IDR is stable at IDR 13,623/USD. Throughout November, foreign fund outflow in domestic equity market has amounted to IDR 2.2 tn or equivalently USD 162 mn.

From international news, recently released US labor data on new US applications for unemployment benefits slipped 5,000 to a seasonally adjusted 271,000 for the week ended 14 November. The claims have now held below the 300,000 mark for 37 consecutive weeks, usually associated with a healthy job market. The strong data appeared to support the Fed’s view of a strengthening labor market that could give the Fed confidence to raise interest rates next month. From domestic news, several macroeconomic data were reported last week:

  1. The October trade balance had once again recorded a surplus of USD 1.01 bn where exports declined by 20.98% YoY (compared to 17.98% YoY decline in previous month vs consensus -16.78% YoY) while imports also declined by 27.81% YoY (compared to 25.95% YoY decline in previous month vs consensus 22% YoY). The sharp decline in exports was due to weakening in oil and gas exports by -44% YoY (-5,1% MoM) from continuing weakness in oil (-24,2% YoY) and other commodities prices such as coal and CPO. The significant decline in imports was also driven by the drop in oil and gas as well as commodities imports. Oil and gas imports, which only account for 16% of total imports, made up for more than 40% of total imports decline. The continuous surplus could result in the CAD to be lower than 2.3% of GDP.
  2. The liquidity in the banking sector remained tight as suggested by the loan growth of 11% and LDR was flat at 89.2% in September (vs 89.4% in August 2015).
  3. As of 9M15, Indonesia’s foreign debt reached USD 302 bn, down by 0.6% from 1H2015 number of USD 304.5 bn, mostly driven by the decline in private sector foreign debts as corporates are trying to reduce USD exposure by switching to IDR denominated debt.
  4. In the last monthly meeting, BI kept the policy rate unchanged at 7.5% but surprised the market by cutting primary statutory reserve requirement by 50 bps to 7.5%, which we think the move may serve the purpose of testing the market to see how investors would react to a less high profile easing move amidst improving inflation and current account. BI also mentioned that BI’s monthly meetings next year will now be set after the FOMC meetings scheduled for the month, indicating that the Fed’s course of action will be a key driver of BI’s policy decisions.

Furthermore, one of our analysts has had the chance to meet with the representative of Directorate General of Budget under Ministry of Finance in order to further understand the budget realization in 2015, with the discussion results given as follows:

  1. Up to 15 October 2015, state revenue collection has only reached 59.6% of FY target while state spending realization has already reached 65.8% and hence the shortfall may reach IDR 150-160 tn. However, according to our analyst, a shortfall of IDR 180-200 tn would be more realistic due to slow tax collection where tax revenue realization has only reached 57.2% from the 2015 target.
  2. Amid the shortfall, the Directorate General of Budget ensured that there will be no cut in infrastructure spending and they will make sure that at least 95-98% of the budget will be spent until the end of the year.
  3. The Directorate General of Budget has also ensured that the shortfall will not be covered by issuing government bonds, instead will be covered using these several options:
  4. Bilateral and multilateral loan from several countries and international institutions such as China, Japan, IMF, and World Bank.
  5. Perform efficiency measures for underspent budget of several ministries. Up to 15 October 2015, the savings achieved from those efficiency measures have reached IDR 16 tn.
  6. Utilize leftover budget from the previous fiscal year, where the leftover budget in 2014 amounts to IDR 19 tn.

This week, JCI Index is estimated to move within the range of 4,450 – 4,613.

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