Download PDFDirectionless markets as virus resurgence may show up in economic data
Global stock markets were moving up and down during the week but closed mostly higher on Friday as Gilead Sciences announced a new study showing its Covid-19 treatment drug Remdesivir significantly reduces mortality rates while BioNTech's CEO stated its vaccine candidate could be ready for approval by December. However, the gains in US stock markets were mostly accounted for by technology stocks, which are resilient to economic lockdowns, as investors worry virus resurgence will start showing up in economic data despite positive surprise from US Non-Manufacturing PMI data of 57.1 for June (consensus: 50.1), which is viewed as largely reflecting conditions before virus resurgence. Meanwhile, European markets also received a boost from industrial production data from Italy and France, which rebounded more strongly than expected in May, after markets initially closed lower on renewed virus fears. Virus worries also send bond yields to their lowest levels since April.
JCI gained modestly as the pace of foreign selling in equity and bond markets slowed (outflows of Rp241Bn and Rp420Bn, respectively) led by banking sector as the government opens possibility of placing its funds also with private banks, not only in state-owned banks, to help with liquidity in the sector.
The Week Ahead - China GDP, Indonesia Trade Balance, BI Rate Decision
The key economic calendar to watch out for next week are China Trade Balance (Tue 10:00), EU Industrial Production (Tue 16:00), US Inflation Rate (Tue 19:30), Indonesia Trade Balance and Business Confidence (Wed 11:00), US Industrial Production (Wed 20:15), China GDP Growth Rate, Industrial Production & Retail Sales (Thu 09:00), Indonesia Interest Rate Decision (Thu 14:30), ECB Interest Rate Decision (Thu 18:45), US Retail Sales & Initial Jobless Claims (Thu 19:30).
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 a second wave of infections. Although Indonesia's coronavirus outbreak is still in early stage, we believe the risk is already priced in as JCI trailing P/E valuation has fallen to around its 20-yr average, while global markets valuation have returned to near pre-pandemic highs at 1SD above their long-term averages. We view Indonesia market valuation is still attractive, regardless of GDP and earnings growth in 2020, as the government plans to reopen economy, despite high uncertainty on the banking sector arising from the extent of NPLs that need to be restructured (at 23% of banking system loans). We believe JCI will continue to recover and narrow its valuation gap to global markets (our target is 5,300) with catalysts from vaccine discovery, signs of coronavirus infections slowing, and resumption of economic activities in Indonesia.
Recommendation
We have been recommending investors to stay defensive since last year with our broad-based ETFs RLQ45 & to minimize volatility and our satellite ETFs (Sri Kehati) and (Pefindo I-Grade), both of which have overweight positions in , which is considered as a defensive stock at times of market uncertainty. For investors looking to benefit from a potential market rebound, our pick is our ETF ( MSCI Indonesia Large Cap), whose constituents of 15 large cap stocks mostly owned by foreign investors have been among the most impacted by foreign selling and thus may benefit from a recovery. shares similarity with and in terms of 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 more risky at current market conditions. However, these two ETFs also have lowest valuation among of our ETF universe, with 2020F P/E of 16.1x and 15.6x, respectively, which are lower than valuation of our broad-based ETFs RLQ45 (at 18.5x), (at 18.4x), and (at 19.1x), and thus may have more upside potential if Indonesia's stock market recovers on a sustainable basis. Please refer to our ETF Fund Guide in page 2.
Sumber : IndoPremier Investment
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