Market Update Bancassurance Maret 2019

Global economic growth slowdown has once again caught market’s attention in early March 2019. What are your views on global economic outlook and its impact to the market?

We think that economic growth this year will indeed slow down. This is normal, since the impact of the growth booster as a result of US tax reform last year will begin to subside. Moreover, the uncertainty from trade war and global interest rate hike trend last year also got in the way of the economic growth. This has shocked the market in 2018, resulting in global market correction. But now the market has adjusted its expectation, so the risk of negative shock is not as high as last year. What is more, interestingly when expectation became too low, the probability that a “good surprise” will happen is higher than that of a “bad news”. For example, US GDP growth in Q4-2018 was 2.6%, better than consensus expectancy at 2.2%.

About market expectation, is there factors that you think can alter the global GDP growth expectation into either more optimistic or pessimistic?

Overall, any factor that can promote free trade, cut down trade tariffs, and bolster global trade can be positive catalysts to global economic outlook. Therefore, the positive result of US and China trade negotiation can be a positive sentiment to the market. Also Brexit negotiation that goes smoothly with UK gradually leaving European Union will also be a favourable result for the market.

Moving on to domestic market, JCI started 2018 with positive performance but then severely weakened and recorded a negative annual performance. In 2019 JCI also started the year with positive performance, but now the market seems to move sideways. Can the market potentially repeat last year’s movement pattern and then weaken in near future?

Early this year JCI did move in a similar pattern to last year’s. During the first two months of 2018 and 2019 JCI recorded ±4% hike. But on closer look, many economic conditions and indicators behind the two periods, both global and domestic, are vastly different:

  • More realistic market expectation. In early 2018 the market was very optimistic, bolstered up by global economic synchronization theme. However, the reality was not as good as expected. While in early 2019, market has adjusted its global growth expectation lower, so there is less risk of negative shock for the market.
  • Improvement in trade wars sentiment. In early 2018, the market was shocked by US’ protectionist policy against its trade partners, especially China, resulting in increasing tariff wars throughout the year. Oppositely, we are currently looking at negotiations between the two countries in finding the best solution in trades. This supports market sentiments.
  • Interest rate hike pressures moderate. In 2018 The Fed raised its interest rate more aggressively than the market expected. This has forced central banks in other countries to also raise their interest rate. Inversely, this year The Fed is being more careful in raising its interest rate, resulting in a more conducive investment climate for developing countries market.
  • More reasonable market valuation. JCI valuation in early 2018 reached its highest peak that poses high risk of market correction. Meanwhile, current JCI valuation is in a more reasonable level.
  • Flow of funds from foreign investors. Last March, in the midst of rising global growth theme, funds are flowing out from developing countries. Now, as global growth moderates, funds tend to flow into developing countries that are considered more ‘immune’ to growth moderation since they are supported by – for example – their domestic economic strength, such as Indonesia.

Overall it’s impossible to conclusively tell if a market pattern will repeat or not, but we think current market condition is more conducive than last year.

In a month, Indonesia will hold its Presidential election. How will it affect market sentiment?

We think the market will mainly hope for a safe and conducive election so that macroeconomic, social and political stability is maintained. Secondly, which is also closely observed, is economic programs. And as we can see, both presidential candidates are willing to encourage economic growth, so whoever elected will supposedly create positive catalysts on certain sectors in financial market.

Other than a conducive election, what catalyst you think will support Indonesia equity market in the future?

We think there is still the potential of foreign funds flowing back into Indonesia equity market. Foreign investor ownership in Indonesia equity market is relatively low especially after the 2017-2018 outflow. Indonesia’s domestic oriented economy will attract foreign investors in the midst of global economic growth moderation. Moreover, the more stable rupiah exchange rate and the expectancy of Bank Indonesia reaching the final point of interest rate hike also create a more conducive investment climate for Indonesia. But of course global sentiment is still a risk to monitor. Further negative shock, for instance a halt in trade negotiation, or a more severe global economic slowdown than currently expected, might cause global investors to take ‘risk off’ position and postpone investments.

This March, most companies have published their 2018 financial performance. What can you conclude from those results?

Generally financial performance report for Q4 2018 wasn’t really surprising and largely in-line with market expectation. Banking sector generally recorded positive profit performance. The management capability to maintain profit margin and asset quality during the challenging macroeconomic condition in 2018 deserves a compliment. Medium banks performances are better than expected. Supportive liquidity condition and better asset quality encouraged profit growth, despite relatively lower loan growth compared to large banks. Generally we see that performances in 2019 will still be in a positive trend. Managements provide a healthy loan growth and indicate an increase in loan interest rate after restraining interest rate adjustment last year. Interesting fact also shown in automotive sector. The managements generally indicated more conservative industrial growth, despite being quite optimistic about more stable market share competition and potentially rising profit margin due to new models launching.

What is your stock selection process and what is your sector pick that can create alpha for the portfolio?

We emphasizes active portfolio management philosophy based on in-depth fundamental research. Our stock selection will be based on various factors such as company growth, cash flow health, company management quality, and valuation level. Currently we favor domestic oriented sectors that do not depend on export as income source. We think purchasing power will remain strong this year, supported by improving rupiah exchange rate, well-maintained inflation level and government’s fiscal policies that support purchasing power through various social spending. In our view these factors will benefit Consumer Discretionary sector. Apart from that, a more stable Bank Indonesia interest rate will also benefit Property and Construction sectors. In line with our active investment philosophy, these stock and sector preference can change according to market condition.



Seeking α is a monthly communication released by PT Manulife Aset Manajemen Indonesia (MAMI). Presented in the Question and Answer format, Seeking α is aimed at presenting the views of MAMI's forward-looking investment experts, directly before you, MAMI's professional investors. This month, we feature updated market commentaries from our Portfolio Manager - Samuel Kesuma.

Samuel Kesuma
Senior Portfolio Manager-Equity


Samuel began his professional career in financial industry with PT Trimegah Securities as Investment Analyst. Before joining PT Manulife Aset Manajemen Indonesia (MAMI), Samuel worked at PT BNP Paribas Investment Partners as Equity Portfolio Manager, PT Trimegah Asset Management as Equity Fund Manager, Abacus Capital (S) Pte Ltd – Singapore as Corporate Finance Analyst, and ANZ Bank – Singapore as Investment Consultant. Samuel holds Chartered Financial Analyst (CFA) certificate.





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