Download PDFBiden administration's new stimulus and vaccination targets lifted markets
Major equity indices hit new highs post US Presidential Inauguration as Biden administration focused on supporting the economy rather than raising taxes, as stated by incoming Treasury Secretary Janet Yellen, and reiterated their goal to deliver 1 million vaccinations a day in the first 100 days in the face of worsening coronavirus pandemic. The new administration's vaccine rollout plans include greater use of Defense Production Act to help with vaccine production. Market optimism was despite news of resistance from Republicans to President Biden's proposed US$1.9Tn stimulus package, which is viewed as too sizeable. Adding to positive market sentiment is expectations for strong earnings season, where among the 13% of S&P500 companies that have reported Q4 2020 results, 86% of them reported positive EPS surprise, according to FactSet. Technology stocks led the gains in US stock markets, as reflected in Nasdaq's 4.19% rise this week.
In Indonesia, JCI was down 1.04% this week, after its strong rise in the past 3 weeks, despite sustained foreign inflow of Rp632Bn. Mining (coal and metals),construction, property and basic industries (pulp & paper, poultry) were among the sectors hardest hit by investor profit takings after recent outperformances,while big cap stocks in banking, auto, and consumer sectors outperformed this week. Meanwhile, the bond market reported net inflow of Rp2.5Tn amid rising 10-yr yields (+11bps).
The Week Ahead - IMF World Economic Outlook, Fed Rate Decision
The key economic calendar to watch out for next week includes ECB President Lagarde Speech (Mon 15:45), IMF World Economic Outlook (Tue 20:00), US Durable Goods Order (Wed 20:30), Fed Interest Rate Decision (Thu 02:00), US Initial Jobless Claims and GDP Growth Rate (Thu 20:30), US New Home Sales (Thu 22:00), and US Personal Income & Spending (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 its recovery, driven by catalysts such as vaccine distribution, Omnibus Law and Indonesia's improving macro outlook, although its valuation has priced-in earnings recovery prospects. Although JCI is getting close to our 2021 JCI target of 6,600 (our bullish case: 7,000), we will still maintain our base case target of 6,600 for now, pending the release of Q1 2021 financial results at end of April and May.
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 in 2020 amid the pandemic, after a strong rise in 2019. 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 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 riskier during the pandemic. However, these two ETFs also have lowest valuation among of our ETF universe, with 2021F P/E of 16.6x and 16.4x, respectively, which are lower than valuation of our broadbased ETFs RLQ45 (at 18.0x), (at 18.1x), and (at 18.1x), 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 on the back of vaccine distribution and expected economic recovery.
Sumber : IndoPremier Investment