Download PDFUS Q1 GDP grew 6.4% as consumer confidence hit pandemic-era highest
Global markets ended lower amid strong US economic and earnings growth, Fed's continuing dovish tone, and receding infections, although Covid situation elsewhere, particularly in India, remains a concern. The S&P500 index hit a new high on Thursday amid strong GDP growth and lower jobless claims although it fell back on Friday due to investors' profit takings. The US economy grew by an annualised 6.4% QoQ in Q1 2021 (vs. 4.3% in the previous quarter), ahead of consensus forecast (6.1%), while personal income and spending grew by 21.1% and 4.2% MoM, respectively, in March, also better than expected on the back of rising consumer confidence. Meanwhile, 87% of Q1 earnings beat expectations and the estimated earnings growth rate for S&P500 is 46.3% in Q1, according Refinitiv. However, inflation rate is also rising with PCE Price Index up by 2.3% YoY (+0.5% MoM) in March although the Fed's promise not to raise rate or to lower its asset purchases helped mitigated the rise in 10-yr UST yield to 1.73%. Elsewhere, EU GDP shrank by 0.6% QoQ (-1.8% YoY) in Q1, a continuing dip from the previous quarter due to renewed Covid lockdowns while China's PMIs showed lower than expected manufacturing and services expansions in April.
In Indonesia, JCI closed 0.35% lower amid smaller foreign outflows of Rp363Bn while the bond market sustained inflows (Rp1.2Tn) for the second week. Gains in mining, property, and construction stocks were not enough to offset losses from key stocks in auto, banking, trade and consumer sectors.
The Week Ahead - Indonesia GDP Growth, US Non Farm Payrolls
The key economic calendar to watch out for next week includes Indonesia Manufacturing PMI and Inflation (Mon 07:30/11:00), US ISM Manufacturing PMI (Mon 21:00), Fed Chair Powell Speech (Tue 01:20), Indonesia GDP Growth Rate (Wed 11:00), US ADP Employment Change (Wed 19:15), EU Retail Sales (Thu 16:00), US Jobless Claims (Thu 19:30), China Caixin Services PMI (Fri 08:45), and US Non Farm Payrolls and Unemployment Rate (Fri 19:30).
Investment Conclusion
Global equities have priced-in strong growth recovery in 2021 but the key issue for markets in recent weeks has shifted to rising inflation, as reflected in rapidly rising bond yields and commodity prices, which could lower profit margins and stock valuation, particularly in the Developed Markets. However, we view rising commodity prices is a bullish case for Emerging Markets as EM GDP, earnings growth and equities returns are historically positively correlated to commodity prices. Indonesia's commodity sectors are expected to add 4.2% to JCI earnings growth in 2021, after contributing negatively to equity earnings growth in each of the past 2 years. We maintain our long-held 2021 JCI target of 6,600 for now (our bullish case: 7,000), pending Q1 2021 corporate earnings releases.
Recommendation
We have recommended investors to stay defensive since before the pandemic, with our broad-based ETFs RLQ45, (IDX30), (Pefindo i-Grade), and ESG ETF (Sri Kehati) to minimize volatility. Both and have overweight positions in , widely considered as defensive stock at times of uncertainty. Meanwhile, has managed to closely track JCI performances so far in 2021, well outperforming other broad-based ETFs due to its overweight of cyclicals, including in banking & basic materials sectors, and its underweight of defensive stocks in the portfolio. As such, is exposed to sectors that should benefit the most from economic recovery while still maintaining defensiveness through overweight exposure in . Meanwhile, Environmental, Social & Governance (ESG) ETFs globally saw record inflows in 2020 amid pandemic and we expect the trend of investing in ESG funds to continue. We also like ETF ( MSCI Indonesia Large Cap) for its constituent of mainly blue-chip stocks.
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 15.5x and 14.6x, respectively, which are lower than valuation of our broadbased ETFs RLQ45 (at 16.8x), (at 16.3x), (at 16.3x) and (at 18.5x), and thus may have more upside potential if investors continue to rotate away from defensive sectors into cyclical stocks.
Sumber : IndoPremier Investment