20 October 2009, 09:07 WIB (GMT+7)
Sharp Fokus : War and Peace
I took a speed reading course and read War and Peace in twenty minutes; it involves Russia’ (Woody Allen).
New investors are taking a speed investing course on Indonesia saying to brokers: ‘tell me something about the IDX’. And the response : ‘well the largest five bank stocks trade at an average price of US50 cents, the average stock USD30cents’. You can imagine for someone new, our market looks like a gold mine. We are basking in a limelight we have not seen for some time, and let’s enjoy it. We remain overweight on the market, targeting 2,700 by year-end. With only two months of the year to go, we plan an upgrade and new index target for 2010 in our next edition.
Global Economy rebound. While Indonesia’s economic resilience surprised everybody, we always thought we were a leading indicator more than anything and now the rest of the world is starting to recover too. The US leading index jumped 2% in August from a year earlier after posting the first positive annual growth for two years in July. This sharp rebound shows strong growth ahead for the world’s largest economy. For Indonesia this means growth is likely to surprise on the upside; we expect 6.2% GDP growth in Q4 2009 with higher growth next year.
1 September 2009, 09:37 WIB (GMT+7)
Sharp Focus : Indochinia and the 12-year itch
Despite the large gains recorded by the market this year, August is the first month the index has posted a positive annual return since August 2008. And the index is still only at the same level as it was in August 2007 – meaning no gain for two years – whilst the average annual return of the JCI over twenty six years is still 21%.
Since the economy has continued to grow since 2007 (over 40% in nominal terms), the market isn’t expensive at current levels. PE 2010 is still only 13.5x and our forecast dividend yield for next year is 3.3%, well above our historical average. The year-on-year change in the JCI has an inverse relationship with two-year future returns – i.e. you should buy stocks when they are down and sell when they are up – so the current level of zero annual gains for the market means returns over the next two years should be above average. Hence, we remain overweight with our year-end index target unchanged at 2,700.
There has been a lot of talk this year about Indonesia joining China and India as the leading economies in Asia. Since we have spent most of this decade battling for attention against those markets our initial response to this trend was none too positive. Now, though, we are beginning to think: if you can’t beat them join them. So this month we offer a slightly different take on the China-Indonesia link and look at how the past performance of China can help us to see what is possible for our equity market in the future. And there’s a twist: we think Indonesia is now the outperformer, so we prefer to put Indonesia at the front of the three country names – not at the back – and hence our title Indochinia.
In the 1990’s it was China & India’s turn to struggle for investors’ attention. In China’s case because of a large currency devaluation in 1993 (33%), exactly three and a half years before ours. The Chinese economy slowed sharply, and the stock market fell in USD terms. In 2006, after a period of 12 years, the renminbi started to strengthen again. And the Chinese stock market broke to new dollar highs becoming the darling of the investment world – now the first thought of overseas investors when they wake up a few time zones away is to check what happened to the Shanghai Composite overnight. The Indonesian currency experience is now twelve years old too and shows remarkable similarities to what happened in China, indicating that Indonesian stocks may be about to enjoy a similar focus of attention in the next few years.