Download PDFPositive vaccine news offset by worsening pandemic, economic weakness
Encouraging vaccine news from Pfizer and Moderna, which both reported 95% effectiveness and are filing for emergency use authorisation with FDA, failed to sustain US equity markets rally this week. Surging Covid cases in US and Europe and the resulting lockdown measures imply economies would get worse before the vaccines would become widely available, while President Trump's refusal to concede the election may reduce chances for a bipartisan agreement on a new stimulus package. US economic data also show signs of weakness as retail sales ex-auto growth of 0.2% MoM in October (September: 1.2%) missed consensus expectation of 0.6%, while jobless claims rose to 742,000 (previously 711,000), although home sales remain robust. Elsewhere, stock markets and commodity prices maintain their uptrend on vaccine optimism and signing of a major trade deal (Regional Comprehensive Economic Partnership) between China, Japan, South Korea and 12 other Asia-Pacific countries, which now forms the world's largest trade block.
In Indonesia, JCI gained 2.03% as foreign equity inflows continued into fourth week with a Net Buy of Rp534Bn. Leading the market are telecommunication, property & construction, mining and infrastructure sectors, while auto, basic industries, plantation, retailing and banking stocks were laggards. Meanwhile, Indonesia's currency and CDS rate weakened slightly as BI cut rate by 25bps to 3.75% and bond market recorded small outflow of Rp680Bn this week.
The Week Ahead - EU and US Markit PMI data, Indonesia Motorbike Sales
The key economic calendar to watch out next week are Indonesia Motorcycle Sales (Mon 10:00), Markit Manufacturing & Services PMIs for EU (Mon 16:00), and US (Mon 21:45), US Durable Goods Order (Wed 20:30), US Initial Jobless Claims (Wed 20:30), US Personal Income and Spending (Wed 22:00), and FOMC Minutes (Thu 02:00), as US markets will be closed on Thursday and Friday due to Thanksgiving holiday.
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's forward P/E valuation has fallen to 20-yr average, while global markets valuation have returned to pre-pandemic highs of 1SD above long-term mean. We view Indonesia's market valuation as attractive and expect JCI to continue its recovery, driven by positive catalysts such as vaccine discovery and Omnibus Law. We maintain our 2020 JCI target of 5,600 and 2021 target of 6,300-6,600.
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) 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 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 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 14.6x and 14.2x, respectively, which are lower than valuation of our broadbased ETFs RLQ45 (at 16.6x), (at 16.7x), and (at 16.6x), and thus may have more upside potential if Indonesia's stock market recovers on sustainable basis and investors are rotating away from defensive into cyclical sectors, which should benefit the most from vaccine discovery and economic recovery. Please refer to our ETF Fund Guide in page 2.
Sumber : IndoPremier Investment
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