The JCI January 2020 Briefs

Sʜᴏʀᴛᴇʀ ᴛᴇʀᴍ ᴀᴘᴘʀᴏᴀᴄʜ ᴛᴏ ᴛʜᴇ JCI

 We at present keep our BUY recommendation on the JCI within 12M horizon. We argue stakeholders effort both domestically and offshore, may  mitigate longer term negative impacts to each local equity markets.

Shorter term, however,  cautious approach for risks to the JCI to include (1) timely average down activities and (2) higher weight should be applied to the more defensive sectors

Sectors choice

We maintain our diversification base recommendation that are Consumer. Trade, Automotive, Coal Mining, with companies pick selection as below (see Chart 1).

 January Excerpts

During the month of January this year, the JCI slipped by 5.7% YTD to close at 5,940pt, factoring in investors’ fears and hopes. Central issue worldwide has been the outbreak of Coronavirus from China that has been preliminary estimated to impact China GDP growth this year by 2ppt (2019: 6.0% YoY). Lunar new year festive in China had been cancelled and holiday is extended until February 9 compared to previously to January 30: this highlighted the significant of the event. Meanwhile, foreign funds flew out of Indonesia equity market the highest last week at IDR2.4tr bringing total January to a foreign net buy of IDR35.7bn (2019:-IDR2.7tr). See Chart 2 and Chart 3

At the other end, the price trend of main commodities except that of gold (+4.5% YTD), has been downward. WTI futures posted monthly decline of 15.6% YTD, while coal at -1.5% YTD, and CPO at -12.8% YTD (see Chart 4). This signs prompted investors’ fund out of equity market world wide , including that of the United States with the DJIA was down by 1.0% YTD.

Domestic front in Indonesia, massive corruption cases have deteriorated investors short-term confidence for risks in the country, in our view. Major case of Jiwasraya, for example,  has been rolling in the news to have involved familiar names in Indonesia stock market, and this prompted investors’ queries concerning the authorities’ competences and integrity. In addition, strange cases, such as Sunda Empire, Raja Ratu Sejagad, Raja Raja Nusantara, seemed to appear to down-play the current administration’s prowess. These two main factors had their shares in monthly decline of the JCI, in our view.

All of the above, among others, have overshadowed Indonesia current sound financial condition which has included the following progresses.

Growth  is stretching positively, with credits expanded at 7.05% YoY in November vs. 6.53% YoY in October, and Third Party Fund expanded by 6.72% YoY in November vs. 6.29% YoY in October. (2019  estimates:6.08% YoY for credits growth, and 6.54% for third party fund growth). For  2019, Bank Indonesia estimates, bonds financing to grow by 7.6% YoY and Fintech by 141.5% YoY.   Furthermore, domestic credits to grow by double digits 10%-12%, while Third Party Funds by 8%-10% this year.

Financial system have been well in controlled with Capital  Adequacy Ratio in November last year was at 23.66%, while Non Performing Loans rate at 2.77% gross and 1.24% net,  indicating that both indicators more-than-sufficient passed the safe levels.

Interest rates both for credits dan deposits have moved consistently with the central bank accommodative policy adopted since June last year.