Download PDFUncertainties on US stimulus and Europe's recovery as Covid cases surged
Key global markets corrected as investors reacted to uncertainty in US stimulus deal, earnings results, and technology sector in the wake of the government's antitrust suit against Google. While timing of a stimulus deal remains uncertain,expectations of a large relief package if Democrats won both the White House and the Senate pushed Treasury yields higher. US economic data were positive with a stronger-than-expected existing home sales in September (+9.4% MoM),a decline in weekly jobless claims, and still expanding Manufacturing & Services PMIs. Meanwhile, European stock markets fell on signs of faltering economic recovery as several countries announced new mobility restrictions/lockdowns to curb rising Covid cases and Markit Services PMI in Eurozone declined to 46.2 in October (September: 48.0) despite its still expanding Manufacturing PMI (54.4). With US election on 3rd November quickly approaching, stock markets appear to be warming up to a likelihood of a Joe Biden landslide win, which we believe would be positive for emerging equities, including Indonesia.
In Indonesia, JCI closed 0.17% higher, despite sustained foreign equity outflows (net sell of Rp962.5 Bn), while the bond market recorded inflows of Rp5.97 Tn,which lowered 10-yr yields to 6.63% (-11bps) and strengthened the IDR/USD exchange rate. Key market drivers include auto, basic industries, property, and mining sectors while telecommunication and tobacco stocks were laggards.
The Week Ahead - US & EU GDP Growth, US Personal Income & Spending
The key economic calendar to watch out next week are Indonesia 2-Wheeler Sales (Mon 10:30), US New Home Sales (Mon 21:00), US Durable Goods Order (Tue 19:30), US Jobless Claims (Thu 19:30), US GDP Growth Rate (Thu 19:30),ECB Interest Rate Decision (Thu 19:45), EU GDP Growth Rate, Inflation Rate, and Unemployment Rate (Fri 17:00), US Personal Income and Spending (Fri 19:30),and China NBS Manufacturing & Non-Manufacturing PMI (Sat 08:00).
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, and maintain 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 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 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 17.2x and 16.7x, respectively, which are lower than valuation of our broad-based ETFs RLQ45 (at 19.1x), (at 19.0x), and (at 19.0x),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