Market Update Bancassurance October 2019

Has been stretching for two years, US-China trade conflict and negotiation has not yet to show any indications to conclude. Entering the second year, is there anything ‘different’ in the progress of US-China trade negotiation?

Although new episodes of US-China trade conflict escalation keep happening, we see a change in bilateral dynamics. It can be said that Chinese government has the upper hand in the bargaining position to determine the course and conditions of trade. US current condition is very different compared to when trade conflict first emerged in 2018, when the US were more dominating with stronger economy and more solid financial market. Currently US economy is slowing down, financial market is weakening, heightened pressure on President Trump towards 2020 election, and also more limited room for tariff increase.

US economy is slowing down and increased pressure – in economy and politic – on President Trump. How do you see this and what relation does it have with trade conflict?

All this time President Trump keeps stating about superiority and strong position in trade conflict negotiation, but the fact is some economic sectors in US is being under pressure:

  • Decreasing export to China and other countries
  • Contraction in manufacture sector
  • Slowing down in labor absorption

The above indicators could affect US GDP growth in the first semester of 2020 which is a crucial period for the upcoming US 2020 election campaign. Latest polls indicate a decrease in people’s satisfactory on the government especially in economy, the field that has been considered as President Trump’s strong point. Latest data shows that 58% of US people see trade conflict escalation with China as a bad policy for US. This condition might put pressure on the government to soften down in the negotiation with China and open up the possibility for a temporary agreement.

FOMC meeting last September came up with two sides of opinions about the course of interest rate policy. Some of The Fed’s officials saw that interest rate cut still needs to continue, while some others opined that they should not cut interest rate any further. What is Manulife take on this?

We in Manulife Investment Management predict that there will still be 50 basis point interest rate cut by The Fed in the next 6 months, and the possibility of further stimulus launching. Monetary policy will be used to counterbalance the negative effect of global manufacture recession, the risk of economic growth deceleration due to tight economic policy in 2018, and the ‘shock’ inflicted by trade conflict. We predict that majority of global central banks will maintain low interest rate and avoid increasing interest rate for at least the next two years, in an effort to push inflation to, or even better than the determined target.

What is the main driving factor of global financial market ahead?

We see that the direction of trade negotiation and fiscal policy will be the key to determine the direction of global market movement ahead:

  • From trade negotiation side, currently ‘no deal’ scenario has become the basic expectation. If there is a good development – say, the negotiation goes well – it will be a positive catalyst for global market.
  • From policy side, in accordance to market expectation, monetary policy will stay accommodative. But in the era of low interest rate and the more limited capability of monetary policy, fiscal policy will have more roles in pushing economic growth.

Shifting to domestic market, World Bank repeatedly warned about the impact of trade war to global economic deceleration. What is its impact on Indonesia economy?

If global economy weakens, global commodity demand will be weaker as well. Indonesia as commodity exporter will be affected, and in turn Indonesia economy will also weaken. Domestic activity data – sales of car, cement, property, and manufacture sector – seem to have been slowing down, although the slowing down is not caused by external factors alone, but also there are internal factors at play. Government’s move of continuing the effort to build hard and soft infrastructure is correct. The goal is enhancing human resources quality and economic growth to improve Indonesia attractiveness and competitiveness among the regional countries, through the increase of investment and less dependency on raw commodity export.

Along 2019 Bank Indonesia has cut its interest rate three times, 0.75% in total. What is the outlook on domestic interest rate in the future?

In the future, monetary policy will still be accommodative. This accommodative monetary policy can act as a ‘cushion’ for Indonesia economy amidst the global economic deceleration. Bank Indonesia still has room for further interest rate cut as shown by Indonesia real interest rate, which is still quite high compared to Asian regional countries with current account deficit, such as India and the Philippines. Inflation, deficit on the current account, and economic growth prospect will be important consideration factors in further interest rate cut.

It was mentioned earlier that fiscal policy will have more roles in promoting global economic growth. How is the chance of fiscal stimulus launching in Indonesia?

The government has formulated some fiscal incentives in the form of tax that is expected to cushion the negative impact of global economic deceleration, and also to accelerate domestic economic recovery. The government is planning to cut corporate income tax – from the current 25% to 22% in 2021 and 20% in 2023 – to improve Indonesia competitiveness in Asian region. The government is also planning to change individual income tax threshold, which will increase disposable income and hopefully will promote purchasing power of the people.

Indonesia stock market this year tends to move sideways. As a market player, what are you expecting in Indonesia stock market ahead?

Sideways market movement is actually in line with the relatively weak economic growth trend. This is shown in the companies’ earnings growth that are lower than expected. As mentioned before, the government has taken correct step in giving fiscal and monetary stimulus. But those policies need time to make significant impact on the economy. In the future, we will continue to focus earnings momentum, to monitor the fundamental trend of each company and the economy as a whole. Also we will continue to monitor the direction of government policies – especially after the formation of the new cabinet – to gain clearer views on the prospect of each industry/sector. As a part of world economy, the performance of domestic stock market will be also affected by global economic development and political stability.

What strategy do you apply for the portfolio to create alpha in current condition?

Our investment process is to continue to focus on identifying investment opportunity through macroeconomic analysis and fundamental analysis on each company. Risk off sentiment that results in foreign investors outflow in the last few months offers investment opportunity in some sectors that have good fundamentals. The current macro situation – interest rate cut trend and manageable inflation – supports our stock picks on companies with solid fundamental within some interest rate sensitive sectors.



Seeking α is a monthly communication released by PT Manulife Aset Manajemen Indonesia (MAMI). Delivered in a Question and Answer format, Seeking α is intended to present the views of MAMI investment experts who are forward-looking, directly in front of you, MAMI professional investors.
This month we present the latest market comments from Senior Portfolio Manager-Equity, Samuel Kesuma. CFA. 

Samuel Kesuma. CFA
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.