INFLATION VS CENTRAL BANKS
Oil finally hit above $45/per barrel indicating that the bottom was behind us. This was good because oil has been a culprit in this deflationary environment. Hopefully we get to see inflation picking up in the near future. The indecisive, data dependent Fed left the world guessing when will the first rate hike be in 2016. No clear sign was given except they kept saying they can do it anytime. BOJ’s decision to wait before expanding monetary easing disappointed the market and triggered profit taking. After expanding QE and practicing negative interest rate earlier this year, BOJ failed to weaken the Yen and thus failed to boost the export.
April 2016 was not a happy month for IHSG investors. Gaining only 0.46% for the whole April. Big cap funds & investors felt more pain as the market moved to second & third liners. Big banks’ rebound was short-lived, prices were not far away from 1month low. NPL was rising in this Q1 2016 all across the board, from big banks to medium and small banks. To worsen the big caps story, ASII & UNTR earnings result were quite bad, erasing all the YTD gains. TLKM benefited so much from this event. With TLKM strong earnings result, investors lessened banking portions and added TLKM and a number of consumer stocks.
INDONESIA Q1 2016 GDP RELEASE
On 9th May 2016 the government is set to release 1Q16 GDP. The current forecast is at 4.9% while the government is very optimistic the figure will be released at 5.1-5.3%. On 5th February 2016 when Indonesia GDP was released way better than expected (5.04% actual vs 4.8% consensus), that was IHSG’s one biggest gain in a day +2.85% (foreign net buy IDR 2.4T). Will the country’s Q1 2016 performance offset the not very pleasing corporate earnings? Will this be the trigger that push IHSG to break the 5,000 level? Or will this be a party pooper?
S&P CREDIT RATING UPGRADE
Ever since Jokowi took the throne Indonesia was a totally different country at least in how they manage its economy. Doing a structural reform from a commodity based economy into investors destination country was for sure not an easy job. Looking back to his earliest days as a president, he removed the fuel subsidy although it was extremely risky and it used to be the most unpopular decision in the country.. In fact it’s the main reason why Indonesia is still in speculative grade (BB+). After fulfilling many requests by S&P the government strongly believes that Indonesia’s credit rating will be upgraded in May 2016. Rumor has it S&P will visit Indonesia in the first or second week of May 2016 to bring the good news. If Indonesia’s credit rating is to be upgraded to BBB- (investment grade), then a couple of world’s biggest fund managers are expected to fly the market. This is due to their IPS (investment policy statement) that limits them from investing in non-investment grade countries even though they know the country is worth investing.
This is the one thing that will boost Indonesian economy in the midst of global economic slowdown. Unfortunately this is fully influenced by politics which we all know that it’s not going to be easy for Jokowi. The house of representatives (DPR) keep stalling the meeting, buying more time to slow down the president and indirectly, the economy. Without tax amnesty the rich stop to consume (cars & luxury goods), stop to invest (property), and most dangerously they stop their business. Tax amnesty will bring great amount of liquidity for the banking system and also for the government (govt bonds). This will drive down the lending rate (good for direct investments & business) and obviously driving the yields down (lower interest expense for companies & governments). In one hit, tax amnesty enables great amount of consumption from the rich to the poor, boosting investments with great amount of liquidity and low lending rate, and lastly enabling the government to upsize its spending portion. This is the number one solution to get going. But the question is, how long do we have to wait?
MAKE OR BREAK
A lot of crucial decisions and results will happen in this month. Will the bull defeats the bear and keep going? Or will this be the end of the rally in a bear market? “Sell in May and go away.” This advice works for some investors in some years, but will it be a good advice in May 2016?
Disclaimer : This note is not a research report. It doesn’t represent any company, institution, or individual. This is not a recommendation or suggestion. Information and data are collected from various public sources. Reader should be able to distinguish between fact on opinion.