Download PDFStocks fell as 10-yr yields hit 1.61% despite Fed's soft inflation expectation
Global stock markets pulled back sharply this week as inflation and interest rate fears return. Anticipation of a stronger growth since the start of vaccine rollouts in November has elevated commodity prices and bond yields. The rise in yields accelerated in the past 2 weeks as 10-year US Treasuries hit 1.61% on Thursday, its highest level in more than a year, unsettling both equity and bond markets. Meanwhile, crude oil prices jumped to above US$60 a barrel for the first time in more than two years and copper prices topped a nine-year high before easing by end of week. Fed Chair Powell testimony confirming the Fed's dovish stance and expectation that it may take over three years to reach its inflation goals has not adequately mitigated the worries, which are also fueled by strong economic data. US jobless claims of 730K came below expectation (cons: 838K), durable goods order & personal income growth of 3.4%/10% MoM in January was also above expectation (cons: 1.1%/9.5%). Meanwhile, the House of Representatives has approved a new relief package this weekend although the Senate has ruled out inclusion of a minimum wage rise in the bill and may cut the package size.
In Indonesia, JCI was flattish (+0.16%) amid returning foreign inflows (Rp994Bn) while bond market saw big outflows of Rp17.4Tn due to renewed inflation fears globally. Leading the index higher are mostly small cap stocks in infrastructure, plantation, banking and mining sectors, while property, construction and basic industries stocks were hardest hit by profit taking. Most big cap stocks were hit by significant corrections except in the telecommunication sector.
The Week Ahead - Indonesia Manufacturing PMI & Inflation Rate
The key economic calendar to watch out for next week are Indonesia Markit Manufacturing PMI (Mon 07:30), China Caixin Manufacturing PMI (Mon 08:45),Indonesia Inflation Rate (Mon 11:00), US ISM Manufacturing PMI (Mon 22:00), EU Inflation Rate (Tue 17:00), China Caixin Services PMI (Wed 08:45), US ISM Non-Manufacturing PMI (Wed 22:00), EU Retail Sales (Thu 17:00), US Initial Jobless Claims and Factory Orders (Thu 20:30/22:00), US Non-Farm Payrolls and Unemployment Rate (Fri 20:30).
Investment Conclusion
Equity markets globally have recovered strongly, pricing in V-shaped recoveries in economic growth and equity earnings in 2021, as the worst of the economic fallout from the pandemic seems largely over despite fears over new waves of infections. We expect JCI to continue with its uptrend momentum, driven by catalysts such as vaccine distribution, Omnibus Law, commodity price recovery, although valuation has priced-in earnings recovery prospects. We maintain our 2021 JCI target of 6,600 for now (our bullish case: 7,000), pending release of Q1 2021 corporate earnings results at end of April and May.
Recommendation
We have been recommending investors to stay defensive since 2019, before the pandemic, with our broad-based ETFs RLQ45 and to minimize volatility, and ESG ETF (Sri Kehati) and (Pefindo i-Grade), which have overweight positions in , widely considered as defensive stock at times of uncertainty. Please note that ESG (Environmental, Social and Governance) ETFs globally saw record inflows in 2020 amid the pandemic. For investors looking to benefit from market rebound, our pick is ETF ( MSCI Indonesia Large Cap), whose constituents of 11 large cap stocks mostly owned by foreign investors are among the most impacted by foreign selling and thus should benefit the most from market recovery. shares similarity with and in terms of its overweight in banking sector, including in .
Meanwhile, (SM-Infra18) and (SOEs) focused on SOEs in infrastructure and financial sectors, lacked defensive constituents such as and consumer stocks, and thus may be viewed as riskier during the pandemic. However, these two ETFs also have lowest valuation among of our ETF universe, with 2021F P/E of 16.0x and 15.7x, respectively, which are lower than valuation of our broadbased ETFs RLQ45 (at 17.7x), (at 17.1x), and (at 17.1x), and thus may continue to have more upside potential if Indonesia's stock market recovers on sustainable basis and investors continue to rotate away from defensive sectors into cyclical stocks.
Sumber : IndoPremier Investment
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