Download PDFStocks fell over Covid cases resurgence, slowing recovery, US election risks
Global stock markets fell for fourth consecutive week amid tech sector recovery over coronavirus cases resurgence in Europe, allegations of money laundering by global banks, and stalling economic recovery. In US, a looming Senate fight over Supreme Court nomination to replace Justice Ruth Bader Ginsburg dims prospect for bipartisan stimulus agreement when Fed Chair Powell stressed the urgent need for more stimulus to support economy. Economic data may not be a key factor affecting markets this week as global PMI data shows a continuing, albeit slowing, recovery, US jobs data and durable goods orders disappointed while political risk from a chaotic US election outcome is a growing concern for markets. Meanwhile, worries over a slowing global demand on the back of virus concerns weighed on oil prices and lowered bond yields.
In Indonesia, JCI fell 2.24% on the back of sustained foreign outflow of Rp2.2Tn although foreign buying returned to bond market (net inflow: Rp4.4Tn) despite a draft revision of the Law on Bank Indonesia's charter undergoing discussion in the parliament, which will reduce the central bank's independence. Large-cap stocks declined across most sectors with auto manufacturer Astra International as a key exception.
The Week Ahead - Indonesia PMI, US Non-Farm Payrolls/Unemployment
The key economic calendar to watch out for in the week ahead are China NBS Manufacturing & Non-Manufacturing PMI (Wed 08:00), US Presidential Election Debate (Wed 08:00), China Caixin Manufacturing PMI (Wed 08:45), Indonesia Manufacturing PMI (Thu 07:30) and Inflation Rate (Thu 11:00), US Initial Jobless Claims, Personal Income and Spending (Thu 19:30), US ISM Manufacturing PMI (Thu 21:00), EU Inflation Rate (Fri 16:00), US Non Farm Payrolls, Unemployment Rate (Fri 19:30), and Factory Orders (Fri 21:00).
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 P/E valuation has fallen to just above 20-yr average, while global markets valuation have returned to near pre-pandemic highs at 1SD above long-term averages. We view Indonesia's market valuation as attractive, regardless of GDP and earnings growth in 2020. Given high correlation factor of 0.80 between JCI and S&P500 indices in 2020 (vs. 0.19 in 2018-2019), we expect JCI will continue to recover, driven by global catalysts such as vaccine discovery. However, given reimposition of mobility restrictions in Jakarta, which will have negative impacts on economic growth and equity earnings, we return to our base-case 2020 JCI target of 5,300 (bullish case target is 5,600).
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), which have an overweight position in , which is considered as defensive stock at times of market uncertainty. Please note ESG (Environmental, Social & Governance) ETFs globally saw record inflows of over US$19bn in 2020 amid pandemic, continuing its strong rise since 2019. For investors looking to benefit from a 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 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 16.6x and 15.9x, respectively, which are lower than valuation of our broad-based ETFs RLQ45 (at 18.2x), (at 18.3x), and (at 18.4x), 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