Download PDFEvergrande debt exposure fears eased but Fed signals hawkish rate liftoff
Global stocks rebounded from selloffs at beginning of this week as contagion fears from Evergrande's huge US$300bn debt woes, which is equivalent to 2% of China's GDP, were eased by an announcement that the company had settled its domestic bond payment due this week and assurances from major European banks and UK banking regulator of limited direct exposures to the Chinese firm. This implies the company's international debt does not appear large enough to threaten stability of the global banking system although a bankruptcy could still weigh on global economic growth. Meanwhile, the Fed's signal that it could be ready to start reducing (tapering) its bond purchases as soon as November, if US labor market continues improving, was widely expected. However, economic projections by members of Federal Open Market Committee ( FOMC ) revealed expectations that interest rate liftoff could begin in late 2022, with median rate forecasts of 1.0% in 2023, 1.8% in 2024, and 2.5% in longer run - this implies a faster interest rate liftoff than expected during the prior FOMC meeting in June. These projections are viewed by investors as a modestly hawkish signal and led to 13bps rise in 10-yr US Treasury yields over the last two trading days to close at 1.46%. Globally, DM outperformed EM equities (+0.22% vs. -1.11%), owing to the fall of the China market, while the prices of crude oils, coal, and palm oil commodities extended their gains this week.
In Indonesia, JCI was up by 0.19% amid continuing foreign inflows (Rp2.75Tn), which entered sixth consecutive weeks, while bond market sustained outflows of Rp6.0Tn, after Rp8.6Tn net sells in prior week. Financials and energy stocks, the two sectors driving up the S&P500 this week, also drove JCI higher, while technology, basic materials, and industrials (auto sector) are the main laggards.
The Week Ahead - Fed Chair Powell Testimony, US Durable Goods Orders
The key economic data releases to focus next week are ECB President Lagarde Speech (Mon 18:45), US Durable Goods Orders (Mon 19:30), Fed Chair Powell Testimony (Tue 21:00), US CB Consumer Confidence (Tue 21:00), China NBS Manufacturing & Non Manufact. PMI (Thu 08:00), China Caixin Manufacturing PMI (Thu 08:45), US Jobless Claims (Thu 19:30), Indonesia Markit Manufacturing PMI (Fri 07:30), Indonesia Inflation Rate (Fri 11:00), EU Inflation Rate (Fri 16:00), US Personal Spending & Income (Fri 19:30), US PCE Price Index (Fri 19:30), and US ISM Manufacturing PMI (Fri 21:00).
Investment Conclusion
Global equities have priced-in strong growth recovery in 2021 but the key issue for markets this year has shifted to inflation, as reflected in rising bond yields, as this could lead to monetary policy tightening in the advanced economies. An unexpected shift in Fed's monetary policy (eg. taper, rate hike) could unsettle global markets and lead to fund outflows from EMs. However, we view the risks to Indonesia are lower now than in 2013 as a Fed tapering is already expected (unlike in 2013), Indonesia country risk indicators have improved, and its bond market is now more resilient. We reiterate our 2021 JCI target of 6,600
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, Environmental, Social & Governance (ESG) ETFs globally saw record inflows in 2020 amid pandemic and we expect the trend of investing in ESG to continue. We also like ETF ( MSCI Indonesia Large Cap) for its constituent of mainly blue-chip stocks, which should benefited from foreign inflows.
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 15.9x and 16.5x respectively, which are lower than valuation of our broad- based ETFs RLQ45 (at 17.3x), (at 17.4x), (at 16.7x) and (at 19.9x), and may have more upside potential if investors once again are rotating away from defensive sectors into cyclical stocks, although we believe this is unlikely given renewed lockdowns in Indonesia.
Sumber : IndoPremier Investment