STAR Insight, Market Update 04 Oktober 2021

The energy sector supported JCI

  • Positive data results bring US equity down while bonds up
  • Evergrande’s worry resurface, US Dollar rises
  • The energy sector’s strong performance pushed JCI up

U.S. Equity correction continued

U.S. GDP for the second quarter of 2021 expanded 6.7% QoQ (annualized), higher than both market expectations and 1Q21 number of 6.6%. For Manufacturing PMI, the number in September is also performing higher than market expectation, 60.7 vs. the consensus estimate of 60.5. Despite this positive result, S&P500 and Dow Jones indexes were down by 2.2% and 1.4%, respectively, last week. The healthcare sector leads the negative performance of S&P500 with a 3.5% loss, followed by technology, and consumer staples sectors which booked 3.34%, and 2.64% losses, respectively. US Dollar index was moving upward last week, increased by 0.35%, while 10Y treasury yield increasing by 1.07bps to 1.46%. Bond yield rise spurred by concern on negative impact from China’s property sector and global energy crunch.

U.S. Dollar rose as Evergrande’s worry resurface

The dollar found support just below last week’s peaks on Monday as renewed concerns about China’s property sector and looming U.S. labour data put investors in a cautious mood. The greenback scaled a 14-month high on the euro and a 19-month top on the yen last week as markets reckoned U.S. interest rates could rise ahead of global peers. The U.S. Dollar Index rose 0.1% to 94.049, while Euro dipped back below $1.16 at $1.1595, just slightly below last week’s trough at $1.1563. Shares in embattled developer China Evergrande (3333.HK) were halted in Hong Kong without any immediate reason, rekindling market nerves about the possibility of global contagion – or at least distress in China’s property sector. Investors are concerned that a collapse at Evergrande could hurt an already fragile Chinese economy and drag down global growth.

The energy sector supported JCI positive performance

JCI up by 1.4% to 6,229 last week with energy (+17.76%) and industrials (+7.10%) sectors lead the positive performance. Indonesian stock attracts a lot of foreign investors this week, as foreign investors recorded a net buy of Rp4.4tn in the regular market, higher than the Rp2.9tn inflow recorded last week. Foreign investors were collecting BBRI (IDR 1.38tn), BBCA (IDR 1.10tn), and TLKM (IDR 559bn). Coal and CPO stocks remain attractive this week, as energy stocks still topped JCI performance, while Covid-19 cases are decreasing further in Indonesia. We are more bullish on Indonesian Equity market supported by higher commodity prices and potential recovery from economic re-opening.

Indonesia’s 10Y government bond yield increased by 8.1bps last week, while the spread to US 10Y Treasury yield also expanded to 4.78%. We see volatility risk in the bond market will increase caused by sentiments from the U.S. tapering program.