Download PDFGlobal equities pricing-in vaccine hopes and future economic recoveries
Selamat Hari Raya Idul Fitri to everyone! Global stock markets performed well in the past week on optimism over reopening of economies and positive news on progress of coronavirus vaccine development. Moderna announced its vaccine candidate has produced antibodies in 8 out of 45 volunteers in its first stage clinical trial while UK pharmaceutical giant AstraZeneca, which has a license for global development and distribution of Oxford University's vaccine (known as AZD 1222), has secured first agreements with UK and US governments to supply 100m and 300m doses, respectively, with first deliveries to begin in September 2020. On the economic front, US jobless claims of 2.4m brought the country's nine-week total job losses to 39m while Markit Composite PMI of 36.4 in May was an improvement from 27.0 in April and ahead of expectation. Meanwhile, European stocks jumped on news that Germany is joining major EU countries in supporting a proposed recovery fund for the region. However, China and HK markets dropped on rising US-China tensions as the US Senate passed a bill that could lead to delisting of US-listed China ADRs while China is poised to impose a new national security law on HK, which could draw more protests.
In the local market, JCI was up only 0.85% during the holiday-shortened week as foreigners were net sellers with outflow of Rp693Bn (of which : Rp773Bn). However, bank sector index gained as all four SOE bank stocks were up sharply, as also cyclical stocks in auto, construction, property, infrastructure and mining sectors while the more defensive consumer stocks faced significant corrections.
The Week Ahead - ECB President and Fed Chair speeches, China PMI data
The key economic calendar to watch out for next week includes US New Home Sales (Tue 21:00), ECB President Lagarde Speech (Wed 14:30), US Jobless Claims & Durable Goods Orders (Thu 19:30), US Personal Income/Spending (Fri 19:30), Fed Chair Powell Speech (Fri 22:00), China Manufacturing & Non Manufacturing PMI (Sun 08:00). Meanwhile, BI decided to hold rate steady at 4.5% this week.
Investment Conclusion
Equity outlook globally has improved and stock markets' volatility decreasing as coronavirus infections are slowing and economies around the world reopening. Indonesia's coronavirus outbreak is still in an early stage although its economic fallout is starting to show. However, we believe the risk is already largely priced in as JCI valuation has fallen to 12x trailing P/E vs. 20-yr mean of 13.7x. We view market valuation is attractive, regardless of GDP and earnings growth in 2020, as Indonesian government plans to gradually reopen economy starting in June although uncertainty on banking sector is high given the extent of NPLs to be restructured (c.20% of banking system loans). We believe a sustainable market rebound will need catalysts of a drug or vaccine discovery, signs of coronavirus infections slowing, and more widespread testing to give confidence to people and businesses to fully resume 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 large overweight positions in , which is considered as a defensive stock at times of market uncertainty. For investors looking to benefit from any 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 most impacted by foreign selling and thus should benefit from any 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, and thus are lacking defensive constituents such as and consumer stocks and are viewed as more risky at current market condition. However, these two ETFs also have lowest valuation among of our ETF universe, with 2020F P/E of 10.7x and 10.2x, respectively, lower than valuation of our broad-based ETFs RLQ45 and at 14.1x and 13.9x, respectively, and (at 14x), and 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