STAR Insight, Market Update 11 Oktober 2021

Foreign flow to JCI continued

  • Bond yield propelled by global energy crunch
  • Indonesia regained attractiveness as energy prices rise
  • The energy sector’s strong performance pushed JCI up

U.S. Equity up, bond yield significantly up

The deficit of the US Balance of Trade in August 2021 expanded to –US$ 73.3 billion, higher than the market expectation of –US$ 70.8 billion deficits as imports increased 1.1%. Last week, jobless claims in the US fell to 326k, below the expectation of 348k, while also lower than the prior period of 364k. S&P500 and Dow Jones were up by 0.8% and 1.2%, respectively, last week. The energy sector led the positive performance of S&P500 with a 5% increase, followed by financials, and industrials sectors which booked 2.3%, and 1.8% increases, respectively. US Dollar index was moving downward last week, decreased by 0.59%, while 10Y treasury yield increasing by 15.02bps to 1.61%. As the global energy crunch continues, bond yield rose significantly last week.


Indonesia to catch up with DM economic growth

Prolonged pandemic and relatively low vaccination rate had left emerging countries’ economic growth to lag behind the growth of the developed market (DM). We note that prior to the energy crunch the consensus expected DM economic growth to reach 5.1% in 4Q21, higher than emerging market (EM) growth of 4.4% for 4Q21. However, the global energy crunch had limited the recovery pace of DM, allowing EM to catching up with the DM growth, as EM’s vaccination rate improved. For Indonesia, as a commodity producer, higher energy prices provide a net-positive impact on the economy. This, coupled with stronger IDR (supported by higher commodity exports), Indonesia’s swift vaccination rate (100mn first doses and 58mn second doses as of 10’Oct), and higher purchasing power (mainly in the rural area) have made Indonesia more attractive for foreign investors. We note that foreign investors recorded a total net-buy of Rp20.7tn to the JCI since September, with a net-buy of Rp10.3tn recorded last week.


Old economy supported JCI positive performance

JCI up by 4.1% to 6,482 last week with consumer non-cyclical (+6.58%) and energy (+4.87%) sectors lead the positive performance. Last week, foreign investors recorded a net buy of Rp10.3tn in the regular market, significantly higher than the Rp4.4tn inflow recorded the week before. Foreign investors were collecting BBRI (Rp2.84tn), BBCA (Rp1.80tn), and BMRI (Rp1.22tn). Helped by increased appetite from the foreign investors, old economy stocks outperformed new economy stocks on the JCI.

Indonesia’s 10Y government bond yield decreased by 0.3bps last week, allowing the spread to US 10Y Treasury yield to narrow to 4.62%. Indonesia’s government bond yield performance remained one of the best in the global market. With stronger commodity prices, we believe Rupiah will be more stable, and negative external factors would have a less – compared to the peers – impact on Indonesia’s bond market.