Analysis: The financial
market outlook post-election
Rully Arya Wisnubroto, Bank Mandiri | Business | Wed, August 06 2014, 11:31 AM
The General Elections Commission (KPU) has officially declared Joko “Jokowi” Widodo and Jusuf Kalla president- and vice president-elect. As expected, the financial market has reacted to the announcement.
One week prior to the announcement, the Jakarta Composite Index (IHSG) slightly increased by 0.3 percent, from 5,070 to 5,087. The rupiah was traded at around Rp 11,570-11,605 per US dollar, the 10-year government bond yield was around 8.05 percent, and foreign investors’ short-term inflow to the stock market had reached Rp 2.5 trillion.
One week after, the stock market index jumped to the range of 5,083 to 5,127, while the rupiah slightly appreciated by 0.2 percent to 11,580, and foreign investors in the stock market posted accumulated net buying of Rp1.07 trillion.
Compared to previous elections, there was relatively little impact on the financial market. For example, during the 2004 election, the stock market index jumped 5.5 percent from the level it stood a week before the result announcement, while the rupiah appreciated 1.6 percent and foreign investors in the stock market posted net buying of Rp 576.4 billion. One week after, the stock market index slightly fell by 0.1 percent (compared to the level at the date of announcement), while the rupiah was stable at 9,080 and foreign investors in the stock market posted net buying of Rp 370 billion.
During the 2009 election, the stock market index was up 0.8 percent compared to its level a week before the result announcement, while the rupiah appreciated 0.4 percent and foreign investors in the stock market posted net selling of Rp 2.6 trillion. One week after, the stock market index fell 1.3 percent, the rupiah slightly appreciated by 0.3 percent and foreign investors posted net buying of Rp 42.5 billion.
Currently, the global stock market is showing positive trends on the expectation of improving conditions in the US economy. Capital flows into the emerging market have become very supportive, as has foreign direct investment. The latest data from the Institute of International Finance (IIF) showed that portfolio flows into emerging markets were estimated at $89 billion, while direct investment was estimated at $321 billion.
Capital inflows into Emerging Asia are expected to remain strong. According to IIF, the region is set to continue to account for more than half of total capital flows to emerging markets, underpinned by solid growth prospects. Most emerging stock markets indices posted strong performances this year. The stock indexes of India, the Philippines and Thailand year-to-date have increased 22.3 percent, 16.6 percent, and 15.7 percent, respectively. Emerging market currencies have also been improving. The Brazilian peso, Malaysian ringgit, Philippine peso and Thai baht appreciated by 4.9 percent, 2.5 percent, 1.7 percent, and 2 percent, respectively.
The Indonesian stock market and government bonds have performed strongly throughout the year. As of the end of July, the JCI had risen 19.8 percent compared to last year’s closing.
At the same time, the government bond yield has fallen 43.5 percent to 8.12 percent, while the rupiah has appreciated by 4.9 percent to 11,575 per dollar. Total foreign fund inflow to domestic stock markets and government bond markets reached Rp 144.9 trillion ($12.5 billion) year-to-date until July 2014, each by Rp 56.7 trillion ($4.9 trillion) in the stock market and Rp 88.2 trillion ($7.6 billion) in the government bond market.
On the other hand, in the banking sector, Indonesian banks experienced slower loan growth after Bank Indonesia (BI) tightened its monetary policy in June 2013. Until May 2014, loan growth continued to slow to 17.9 percent from 19 percent in the previous month. Meanwhile, in the same period, third party funds (TPF) grew 12.4 percent, slightly higher compared to 12 percent in the previous month. But we expect the Indonesian banking sector to remain stable over the next six to nine months. Mandiri Banking Pressure Index (MBPI), a leading indicator of banking sector performance in Indonesia, posted an upward trend to 102 in May 2014 from 94.5 in the previous month (a number between 61 and 103 is normal and below 61 would signal an alert).
Going forward, we still believe that the Indonesian financial market still has opportunities to perform better. However, there are still many risks, externally and internally.
The end of the US Fed’s tapering policy around October 2014 could create speculation that the Federal funds rate will be raised faster than market expectation. The increasing US benchmark rate could create sudden capital reversal and cause volatility in emerging markets, including Indonesian financial markets. The second global risk will be coming from volatility in the emerging markets.
Current debt default in Argentina escalated the concern that emerging markets are still at risk. This would likely cause global stock markets to fluctuate and also affect the domestic market. Another global risk is the crisis in Ukraine, which could result in sanctions against Russia. This could hurt the global economy because Russia is a large market for many international corporations.
Internally, there are also a few things that the market will be watching closely. First is the creation of the new Cabinet. Second is how the new government handles the fuel subsidy issue. Third is the development of an economic indicator that still brings concerns for investors, like slowing gross domestic product (GDP) growth and the current-account deficit. On the monetary side, the economic team of Bank Mandiri Group expects BI to maintain its tightening stance and believes there is a probability that the central bank will raise the benchmark rate as much as 25 basis points (bps) if the risk from external imbalance escalates. If policymakers can handle those risks well, then there will be a chance that the financial market reacts positively, resulting in more foreign capital inflow to the Indonesian market.
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The writer is a financial market analyst at Bank Mandiri
Analysis: The financial market outlook post-election | The Jakarta Post
Adaro starts commercial operation at Balangan site
The Jakarta Post | Business | Wed, August 06 2014, 12:07 PM
Adaro Energy, one of the country’s biggest coal producers, announced on Tuesday that its newly acquired South Kalimantan mine had started commercial production and had made an initial shipment to Thailand in June.
Adaro said in its quarterly report, made available on the Indonesian Stock Exchange (IDX) website, that the Balangan site located near the company’s concession in the province, had started production in the second quarter of the year with total output for the period standing at 77,335 tons of coal.
The statement said that about 53,724 tons of the coal produced from the mine were exported to Thailand, with its initial shipment made on June 6.
“We are happy that Balangan Coal has started operations. Its geographical proximity to our existing infrastructure, its good quality coal and relatively low capital expenditure have made its possible to develop within only a year,” Adaro president director Garibaldi Thohir said.
“This is a great leap for us to reach our medium-term goal and maintain supply for consumers.”
Balangan owns coal licenses covering an area of 7,500 ha. By the end of 2012, it estimated Joint Ore Reserves Committee (JORC) compliant coal resources of 172.3 million.
Adaro hopes to conclude its latest JORC study for the mine before year-end.
Adaro acquired 75 percent shares of the Balangan coal project worth Rp 3.9 billion (US$333,381) last year, through its subsidiary PT Alam Tri Abadi (ATA). The remaining 25 percent is owned by local businessmen.
The Balangan coal project consisted of three companies, namely PT Paramitha Cipta Sarana (PCS), PT Semesta Centramas (SCM) and PT Laskar Semesta Alam (LSA).
Adaro said that the coal characteristics at Balangan were similar to its product, Envirocoal.
Adaro targets Balangan’s production to reach 8 million tons per year. As for this year, the company targets to produce one million tons of coal from the site.
Adaro’s sales to Thailand contributed less than 5 percent to the company’s total sales in first half of the year.
According to the quarterly report, Adaro sold 28.25 tons of coal in the first half of the year, rising about 14 percent compared with 25 million tons in the same period last year.
Adaro markets the biggest portion of its production to the domestic market, amounting to around 22 percent of its total sales. India followed Indonesia with around 22 percent, while China contributed around 13 percent to the total figure, Japan with 10 percent, South Korea with 9 percent and Spain and Hong Kong with 7 percent each.
Neighboring Malaysia made up 6 percent of total sales, while Taiwan, the Philippines and the United States contributed less than five percent.
Its production went up by about 12 percent, from around 24.94 million tons in the first half of last year to around 27.83 million this year.
Garibaldi said that given the production performance of his company up to the first half, Adaro was upbeat it would be able to secure its production target this year.
Adaro aims to produce 56 million tons of coal this year, an increase of about 6 percent compared to last year’s production of 52.7 million tons.
Adaro has yet to publish its first half financial report.
The company reported that its first quarter net income grew from $30 million last year to $131 million, despite pressure from declining prices in the global market.
— JP/Anggi M. Lubis
Adaro starts commercial operation at Balangan site | The Jakarta Post
Astra first half profits up 11% despite weaker auto business
Esther Samboh, The Jakarta Post, Jakarta | Business | Fri, July 25 2014, 10:43 AM
Publicly listed diversified conglomerate PT Astra International, the nation’s largest company by market value, booked Rp 9.8 trillion (US$847.10 million) in net profits in the January-June period of this year, up 11 percent from the same period a year ago despite a drop in its main business — automotive.
“The Astra Group business recorded mixed results in the first half of 2014, although operational volume remained high,” Astra president director Prijono Sugiarto said in a press statement released on Thursday, in reference to positive results from its financial services, heavy equipment and mining, agribusiness and IT sectors.
The automotive and infrastructure segments slowed, as Astra’s carsales grew slower than sales nationwide.
“Although demand for automotive remained strong in the first half of 2014, the ‘discount war’ that has continued in the car market has had a negative impact on net profits,” the company said in the
statement, citing 4 percent growth in Astra’s car sales, with 334,000 units sold, versus nationwide car sales growth of 7 percent to 642,000 units.
Growth in the company’s motorcycle sales remained strong at 11 percent to 2.6 million units in the first half of this year compared to the same period last year.
Nationally motorcycle sales rose by 7 percent to 4.2 million units. Automotive sales are one of the main indicators of consumer demand in Southeast Asia’s largest economy, which is 50 percent driven by consumer spending.
“[Astra’s overall] financial performance until year-end is expected to remain good, although competition in the car market remains high and coal prices are expected to stay low,” Prijono said.
Global coal oversupply has driven prices lower and hurt businesses in the coal-mining sector, especially in Indonesia which is the world’s top thermal-coal exporter.
Astra’s heavy equipment arm, PT United Tractors, said its Komatsu brand saw a 10 percent decline in sales to 2,207 units in the first half of this year due to lower demand from the mining and plantation sectors which account for more than half of the company’s sales.
“[However,] the depreciation of the rupiah against the US dollar is one of the main factors that made a positive contribution [to United Tractor’s financial performance], boosting the company’s gross profits by 34 percent, while net profits rose 42 percent to Rp 3.28 trillion,” the company said in a separate statement.
Astra’s recently formed joint venture with British life insurer Aviva plc, called Astra Aviva Life, has helped the company’s financial services arm to become the second biggest profit contributor with profit growth reaching 15 percent, to Rp 2.5 trillion, in the January-June period.
“Without taking into account the profits from the 50 percent acquisition of Astra Aviva Life, the net profits of the financial services division dropped 5 percent to Rp 2 trillion. The strong growth, especially from Federal International Finance, saw pressures from a decline in contribution from Asuransi Astra Buana,” Astra wrote.
Bank Permata, which Astra owns together with Standard Chartered, also saw a 2 percent decline in net profits to Rp 800 billion.
Shares in Astra traded 0.32 percent lower on Thursday at Rp 7,675, having gained almost 13 percent so far this year but under-performing the broader Jakarta Composite Index’s (JCI) 19.3 percent advance.
Astra first half profits up 11% despite weaker auto business | The Jakarta Post
Stocks drop as GDP data disappoints, market prospects still good
Tama Salim, The Jakarta Post, Jakarta | Business | Wed, August 06 2014, 12:04 PM
Indonesian investors responded negatively on Tuesday to the nation’s second quarter gross domestic product (GDP) report that revealed the slowest growth rate since 2009, but analysts downplayed worries about future stock performance.
The Jakarta Composite Index (JCI) dropped 0.2 percent to 5,109.09 on Tuesday, as foreign investors sold Rp 130.6 billion (US$11 million) morein stocks than was purchased throughout the day of trading.
Southeast Asia’s largest economy grew 5.12 percent in the April-June period this year as compared to the same period a year ago amid weak exports, investment and government spending, the Central Statistics Agency (BPS) announced on Tuesday.
Analysts have blamed the release of the GDP data as the primary culprit behind Tuesday’s disappointing stock performance, but said that thepoor showing was not likely to trigger a downward trend as they considered it a merely the result of profit-taking actions on previous gains.
“It’s not a significant decline. Yesterday the stocks recorded a 0.61 percent bump, so it’s likely [that today’s movement is] just a take on profit,” Standard Chartered senior economist Fauzi Ichsan told The Jakarta Post on Tuesday.
Some 5.4 billion shares worth Rp 5.7 trillion were traded on Tuesday, with miscellaneous industry (-1.15 percent), consumer goods (-0.91 percent) and manufacturing sectors (-0.79 percent) leading the losses. The finance (+0.04 percent), property (+1.14 percent), agriculture (+0.42 percent) and mining (+0.22 percent) sectors, on the other hand, ended the day in the green.
Blue chip stocks such as those of Unilever Indonesia (UNVR), Astra International (ASII), Bank Rakyat Indonesia (BBRI) and Perusahaan Gas Nasional (PGAS) were the laggards of Tuesday’s stock performance, declining between 1.3 to 1.8 percent during the day. Bank Mandiri (BMRI) was the Indonesia Stock Exchange’s (IDX) leading mover, with stocks gaining 1.2 percent after news circulated in local media on Tuesday that it was seeking to acquire a local bank in the second half of this year.
In the future, three factors would likely to appease the market, according to Fauzi. First, the issuing of the verdict from the Constitutional Court (MK) in the lawsuit filed by losing presidential candidate Prabowo Subianto, which is scheduled for August 22 or 23.
Second, the possibility of several political parties to jump ship from Prabowo’s red-white coalition, which controls more than half of the seats in the legislature to president-elect Joko “Jokowi” Widodo’s camp. Third, the announcement of the next government’s ministerial Cabinet.
“If the MK ruling [among other factors] favors Jokowi, then I believe the stock market can finish at 5,400 to 5,500 points by the end of the year,” Fauzi concluded, referring to a possible 26 to 29 percent advance in the JCI by year’s end.
Indonesia’s stock index has risen 19.5 percent so far this year, one of the best performers in the region. That figure compares with a 22.4 percent gain for India’s S&P Sensex, 18.4 percent at the Philippines’ PSE Index, 5.06 percent at the Singapore’s FTSE ST and a -5.96 percent decline in Japan’s Nikkei 225.
“After the resolution of the political uncertainty, the market will then come to terms with the ‘real’ conditions,” capital market analyst Edwin Sinaga told the Post, citing the government’s plans on infrastructure, inflation and the fuel subsidy, as well as local companies’ financial performances.
Edwin, who shared Fauzi’s belief that the JCI could end the year at between 5,400 and 5,500, also said that the naming of professionals or technocrats for the new Cabinet would also positively impact the market.
Previously, Jokowi revealed plans to boost the country’s growth rate to 7 percent in two years by improving infrastructure and manufacturing. Indonesia has not seen such growth rates since the autumn years of Soeharto’s reign ahead of the 1997-1998 Asian financial crisis.
Jokowi’s optimism is further complicated by a ban on mineral-ore shipments that has taken a toll on exports. Energy imports have also triggered additional trade deficits.
Stocks drop as GDP data disappoints, market prospects still good | The Jakarta Post
