Download PDFJoe Biden win, vaccine trial news propelled global stocks to new highs
Stock markets around the world rallied to new highs as Joe Biden crossed 270 electoral vote threshold needed to win the US Presidential election, while Pfizer announced its coronavirus vaccine candidate, which it developed in partnership with Germany's BioNTech, was over 90% effective in preventing infections and that it could begin rollout in limited quantities by end of the year. These bullish market condition was achieved despite record high coronavirus infections and hospitalisations in US-Europe, which imply the pandemic could worsen before it got better, and President Trump's refusal to concede the election. Meanwhile, a light economic calendar showed lower than expected US weekly jobless claims of 709,000 but weaker than expected Michigan Consumer Sentiment survey. EU industrial production growth of -6.8% YoY in September was below consensus while ECB signalled it would expand pandemic emergency purchase program. These positive news also pushed commodity prices and bond yields higher as investors rotated from safe havens and lockdown winners (such as tech stocks) into cyclical stocks that should benefited the most from economic recovery.
In Indonesia, JCI gained 2.35% as foreign inflows continued into third week in both equity and bond markets (Rp4.45Tn and Rp11.5Tn, respectively), which led to declining 10-yr yields to 6.32% and 5-year CDS rate to 75.74, both at near their pre-pandemic record lows, and currency apprecation. Key market drivers were major cyclical stocks in banking, basic industries, retailing, utility, property and construction sectors, including underperforming telecommunication stocks, while outperforming consumer stocks were among the laggards.
The Week Ahead - Indonesia Interest Rate Decision & Current Account
The key economic calendar to watch out for in the week ahead are Indonesia Trade Balance & Business Confidence (Mon 09:00/11:00), Indonesia Auto Sales (Tue 10:30/16:30), US Retail Sales & Industrial Production (Tue 20:30/21:15), US Housing Starts (Wed 20:30), Indonesia Interest Rate Decision (Thu 14:30), US Initial Jobless Claims (Thu 20:30), and Indonesia Current Account (Fri 10:00).
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. We believe Indonesia's coronavirus fallout is already fully priced in as JCI's forward P/E valuation has fallen to 20-yr average, while global markets valuation have returned to pre-pandemic highs of 1SD above long-term mean. We view Indonesia's market valuation as attractive and expect JCI to continue its recovery, driven by catalysts such as vaccine discovery and Omnibus Law, to reach our bullish case 2020 JCI target of 5,600 (our base case is 5,300). We also maintain our base-case 2021 JCI target of 6,300 (6,600 under our bullish case).
Recommendation
We have been recommending investors to stay defensive since last year with our broad-based ETFs RLQ45 & to minimize volatility and our ESG ETF (Sri Kehati) or (Pefindo i-Grade), which have overweight positions in ,which is considered as defensive stock at times of uncertainty. Please note that ESG (Environmental, Social & Governance) ETFs globally saw record inflows of over US$19bn in 2020 amid the pandemic, continuing its strong rise since 2019. For investors looking to benefit from further market rebound, our pick is ETF ( MSCI Indonesia Large Cap), whose constituents of 15 large cap stocks mostly owned by foreign investors are among most impacted by foreign selling and thus should benefit the most from 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 2021F P/E of 14.2x and 13.7x, respectively, which are lower than valuation of our broad-based ETFs RLQ45 (at 16.2x), (at 16.3x), and (at 16.3x),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