Foreign Inflow Peaks - after 9 months of draught

JCI has been trading very aggressively over the past one month, with a vigorous foreign inflow pouring into the equity and bonds markets. Realistically, however, we feel this rally was merely on the flow game instead of the “fundamental” one. BI FX reserves swelled to USD4.8 billion, reaching USD150.2 bn in August 2024, as foreign inflows bought equity, bonds and SRBI. Combined value was close to USD2.49 for bonds vs. USD1.85 bn for equities. We suspect risk-on behavior from the market derived from an expected decline of future interest rate, with no real confidence in the local economy itself. IDXfinancial has been up by 12% since August 2024, while IDX80 and Kompas100 index only grew by around 8% over the same period. To put it in perspective, those indices are still some -8% shy of their February 2024 peak.

We are still in deflationary mode: China PMI has yet to recover

Our strong index was not supported by any forceful buying power, as Indonesia's inflation rate continued its deflationary trend, reaching 2.12% YoY, mostly the result of foodstuff deflation. Core inflation only notched up by 0.2% MoM in August, due to personal care and education; if we excluded those, then it's only 1.7% YoY. Dull domestic and global demand, especially from the PRC and the USA have steadily depressed inflation. PMI data from four major powerhouses still prints below 50, pressuring Indonesia. Looking at this as “reverse psychology”, then weaker inflation and growth prospects mean monetary easing has been priced in. However, our economist suspects that rather than a straight to rate cut, we will be seeing the unwinding of SRBI; hence a drawback of IDR could result. Aside from regional elections, which contribute with spending in “big pocket cities” (Jakarta, Jawa Barat, Jawa Tengah, Jawa Timur and Sumatra Utara), we are still too dependent on narrow base tourism (Bali and Bajo), capital- intensive manufacturing and public sector projects. With no reform signals from the Government, we are unlikely to see any significant PE multiple expansion in long term.

Strategy - Survival of the Fittest

Strategy - Survival of the Fittest

Andre Benas

Strategy

17 September 2024 - 07.00am

Strategy - Survival of the Fittest

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