JCI almost breaking the all-time high

• Despite high inflation, US equity, and bond increased
• Indonesia recovery on the way with CA will likely positive
• Old economy stocks lead JCI performance
  

U.S. equity and bond rise despite higher than expected inflation

U.S. CPI is increasing 0.4% MoM in Sep’21, higher than market expectation of 0.3% MoM. Sep’21 inflation reached 5.4% YoY (vs. consensus: 5.3%), significantly higher than The Fed long-term inflation guidance at 2.0%. However, PPI is below expectation in Sep’21, increasing by 0.5% MoM (8.6% YoY), lower than market expectation of 0.6% MoM (8.7% YoY). S&P500 and Dow Jones were up by 1.8% and 1.6%, respectively, last week. The materials sector led the positive performance of S&P500 with a 3.64% increase, followed by consumer discretionary, and real estate sectors which booked 3.55%, and 3.52% gains, respectively. US Dollar Index was moving downward last week, decreased by 1.04%, while 10Y treasury yield is decreasing by 4.15bps to 1.57%. The positive sentiments may

Indonesia may book the first CA surplus after 10 years.

The market was reacting negatively after the announcement of Indonesia’s Sep’21 trade balance last Friday. JCI rally was halted after the trade data announcement. The trade surplus was recorded at US$4.37bn in Sep’21, higher than the market expectation of US$3.87bn. However, this high surplus came from weak imports, while exports came in lower than market expectations. BPS reported that Indonesian export grew 47.6% YoY in Sep’21, lower than the market expectation of 51.3% YoY growth. We note that today, the Bloomberg quotes trade data revision from BPS with higher export growth of 63.6% YoY for Sep’21 and a higher trade surplus of US$4.75bn (Fig. 1). With these strong trade data, the market is now expecting Indonesia’s Current Account surplus in 3Q21, the first surplus after 10 years.

Old economy stocks still lead JCI performance

JCI recorded strong performance with a 2.3% gain last week, almost reaching its all-time high record of 6,693 recorded on Feb’18. Basic materials (4.25%) and consumer non-cyclical (+3.09%) sectors lead the positive performance. Last week, foreign investors recorded a net buy of Rp5.1tn in the regular market, lower than the Rp10.3tn net inflow in the previous week. Last week, foreigners were collecting BBRI (Rp2.0tn), BMRI (Rp0.89tn), and ASII (Rp0.59tn). With better than expected trade data, we expect JCI to further increase this week, supported by proxies of Indonesia’s economic recovery, the banking and consumer sectors.

Indonesia’s 10Y government bond yield decreased by 14.6bps last week, allowing the spread to US 10Y Treasury yield to narrow further to 4.51%. Strong trade data and stable Rupiah will attract foreign investors to the Indonesia bond market, in our view. We note that last week, foreigners booked an outflow of approximately Rp3tn from the Indonesian government bond market.