Uncertainty Remains, But Risk-Reward Attractive for Indonesia Equity. Tactical Buy
“A good time to buy is when policymakers start to panic.”
After so much backlash recently following the equity market and currency underperformances, the Indonesian government is finally starting to pay attention.
Whereby, recent coordinated policy responses suggest that 5,300 for IHSG and 18,000 for USD/IDR are the levels that policymakers may not be comfortable with.
Here’s what they did this week:
Hiking interest rate by 25bps to 5.5% during an off-cycle to defend Rupiah.
Signalling potential stock purchases by Danantara and BPJS.
Reaffirming no changes to strategic policies in the commodity sector.
Increasing non-subsidized fuel prices & cutting MBG budget to ease fiscal.
Normalizing sovereign bond yields across the curve.
Opening the door for a cabinet reshuffling in key economic positions.
The result? After consecutive weaknesses, the Indonesian equity market finally rebounded, surging +7.6% yesterday to mark its best daily gain since Mar-20.
IHSG’s positive daily return also occurred despite net foreign outflows of IDR 2.6 trillion in the regular market, implying that domestic investors may have capitulated and are now the price-makers, at least for now.
We expect IHSG to trade sideways within the 5,500 to 6,200 range with volatile movements as investors digest policy direction, economic slowdown, and market-specific factors (i.e. MSCI and S&P).
Nevertheless, the risk-reward looks measured and represents opportunities. Algo Research Alpha: AMMN, TPIA, INCO, ANTM, PGAS, MEDC, BDMN.