Market Update Bancassurance January 2021

After a challenging 2020, how will economic outlook be in 2021?

We predict that 2021 will be the year of global economic recovery, continuing the gradual improvement since Q4 2020. Accommodative monetary and fiscal policies and the availability of Covid19 vaccine support the economic activity normalization this year. Economic recovery is predicted to accelerate in the second half of this year, as access to vaccine and vaccination activity increase. Service sector which contributes to over 70% of world economy is predicted to gradually recover. IMF predicts that world economic growth will increase to 5.2% from -4.4% contraction in 2020, which most growth will be supported by developing countries in Asia that are predicted to grow 8.0% this year.

If the explanation above was mostly on global view, how about Indonesia economic outlook?

We think Indonesia will enter the period that supports investment cycle – both in capital market and real economy – supported by accommodative fiscal and monetary policies, wider availability of Covid19 vaccine, and implementation of Omnibus Law. Omnibus Law has the potential to transform Indonesia into a hub in Asia supply chain which hopefully can grab company relocation opportunity in an effort to create jobs in Indonesia. Most recent development – optimism on additional stimulus in US, less pressure on current account, manageable inflation, and relatively low foreign ownership on Indonesia financial asset – are predicted to support Rupiah exchange rate stability, which is the key factor for market confidence. So far we predict Indonesia economic growth will return to positive with growth rate around 4.3-4.5% in 2021.

In 2020 Indonesia equity market performance lagged compared to other markets, how do you see Indonesia equity potential this year?

Indonesia stock market has better chance this year, where economic growth recovery usually create a more supportive environment for equity market. High participation of domestic retail investors plus the hope for foreign investors’ sentiment reversal have the potential to boost equity market performance this year. Seeing from top-down perspective, equity market can gain ‘advantage’ from economic growth recovery and the hope for higher foreign investment which is supported by ample liquidity from stimulus issued by many countries. From bottom-up perspective, equity market is supported by growth recovery of company earnings. The formation of Sovereign Wealth Fund or INA (Indonesia Investment Authority) also has the potential to boost infrastructure construction with fund support from multiple countries. Also as a producer of nickel, supply chain construction for electric car batteries will also increase investments various industries in the supply chain and will create added value compared to only exporting minerals.

How is the prospect of foreign inflow this year?

Foreign fund inflow is predicted to improve; the return of foreign portfolio fund is one of our investment themes this year. The continuation of global accommodative policies and the commencement of mass vaccination will potentially encourage foreign fund inflow to emerging markets such as Indonesia. Some factors that triggered foreign fund outflow all this time are:

  • The growth of developing countries that tended to be below expectation compared to developed countries.
  • The heightened geopolitical tension between US and China increased risk premium of developing countries.
  • The decrease of Indonesia’s weight in global indexes such as MSCI.
  • The lack of exposure in Indonesia stock market for ‘new economy’ sector.

Ahead, we hope this condition will improve, and revive investors’ appetite towards emerging markets. Especially since foreign investors’ ownership in Indonesia equity is at one of the lowest levels since 2013.

What do you think about the argument that Indonesia equity market valuation is no longer ‘cheap’?

Correct, compared to historical average, the current Indonesia equity market valuation is already above its historical average. However, this situation also happens in almost all markets globally. The abundance of global liquidity – caused by interest rate cut and asset purchasing program by central banks – made risky asset valuation increase above historical average. In our view, Indonesia equity market is still attractive because it’s valuation is still lower compared to other regional countries as well as other asset classes. Besides if we look at it sector by sector, big caps valuations are still reasonable – with consistent earnings improvement – because in the last few months strong market performance are mostly caused by commodity sector related to supply chain for electric car in Indonesia.

In portfolio management, which sector you would prioritize?

We are focusing on companies in cyclical sector that are benefited by post-pandemic domestic economic recovery and commodity sector that are benefited by demand recovery parallel to global economic recovery. Three main sectors that have attractive potentials are materials, telecommunication, and financial sectors.

Aside from aforementioned catalysts, what risks investors will need to pay attention to?

In our view the main risks will be;

  • Pandemic. Pandemic handling mitigation will be the main focus this year; vaccine distribution and vaccination process can be market mover for financial market.
  • Geopolitics. US-China relationship under the new administration of Joe Biden will be a focus as well. Currently the market expects that Joe Biden will adopt more diplomatic policies and less confrontational than Trump’s administration.
  • Policies. Amid current pandemic climate, effective policy making and implementation is very important, slow implementation of reform will affect the speed of economic recovery.


Seeking 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 Senior Portfolio Manager - Equity, Caroline Rusli, CFA. 

Caroline Rusli, CFA
Senior Portfolio Manager – Equity


Acquired Deputy Investment Manager license from Capital Market Supervisory Agency and Financial Institution (Bapepam) on February 22nd 2005 according to the decision letter of Chief of Capital Market Supervisory Agency and Financial Institution No.KEP20/PM/WMI/2005. Caroline started her career at PT Panin Asset Management, then she worked for PT First State Investments Indonesia. Caroline holds the degree of Bachelor of Economics from University of Tokyo, Japan.





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