1. Market Update,
December 2016
Update from:
Research Team

2. Economic Update

3. Important Notes in 2016 Summary
Inflation in 2016 is as expected, in the range of 3%-5% (3.58% Nov 2016, yoy)
IDR strengthening (ytd 2.9%) despite weaken for the last couple months
Tax Amnesty Program (Penalty has reached IDR 4k T, repatriation IDR 96 T), to strengthen the number of payer and tax based)
Economic growth is in line with the expectation (5.0% yoy)
Better political situations
Comprehensive and continous government stimulus packages (14 different packages since Sep 2015)

4. Economic Activity Govt Budget Summary Consumption Investment
Government spending saw a slowdown in Q3’16 as revenue growth is behind target up to Aug’16 before the tax amnesty penalty came to rescue in Sep’16. As of Sep’16 the govt tax revenue realization = Rp896tn (68% of SMI’s target of Rp1,200tn) and total spending realization = Rp1,350tn (72% of SMI’s target of Rp1,885tn).
Consumption
After accelerating in first half of the year, consumption see a slowing down activity in Q3’16.
Investment
Investment activity see continue improvement up to Q3’16.
Although BI has been accommodative, the liquidity system is still not improving.
Export growth see continue improvement, helped by improving commodity price and relaxed mineral export policy.
Liquidity System
External Trade
Industrial production see strong growth in Q3’16 while PMI is still indicating expansion.
Supply Side

5. Economic Activity Summary
Consumption activity slowdown in Q3 can partly explain by slowing Government spending as Government revenue realization was below target in Aug’16 before a one-off tax amnesty penalty helped to boost revenue in Sep’16. This is also explain the tight liquidity in the system up to Q3’16 (slow demand hold credit growth, while some consumer’s disposable income is spent on tax amnesty = pulling money out of system).
On the other hand, from business perspective, investment activity continue to recover.
The risk going forward would be if we can’t see a picking-up on the demand side as business sector is already expanding (they’re facing a demand gap risk). One way to monitor is from the progress of tax amnesty penalty: if we see the penalty receive is slowing going forward it means majority of people are already join the first phase of amnesty thus we can expect this people can start to accumulate disposable income which can be spend by end of Q4’16 or Q1’17.

6. Economic Activity
GDP Growth – Trend & The Drivers

7. Economic Activity Government Budget
Infrastructure spending is still growing.
But the Govt Spending role will shift from Booster to Stabilizer.
Growth momentum rely on Investment.

8. Economic Activity
GDP Growth – By Sector
CPO
Coal

9. Economic Activity
Consumption & Investment

10. Economic Activity
Consumption - Consumer Confidence Index

11. Economic Activity
Consumption - Retail Sales Index

12. Economic Activity
Government Spending & External Trade

13. Economic Activity
Banking & Liquidity – Excess Liquidity

14. Economic Activity
Banking & Liquidity – LDR

15. Economic Activity
Banking & Liquidity – Credit by Type

16. Business Confidence Feedback from the ground
FX-based loan is closely related with export-import activity, commodity sector, and new foreign investment.
Export-import activity has been sluggish following slower global growth/demand and for Indonesia case, the export-import activity is very dependent on commodity base.
With the continuing lower commodity price, smaller players has been pushed to out of business while remaining players postponed their expansion plan thus explained the slower FX-based loan needed. While for new foreign investment, so far we still not see an accelerating rate due to three common pushback discussed before.

17. Global Update

18. Global Stock Market The great rotation begin? Infras spending Growth
Tax cut
Increase wages
Protectionism bias
Radical
Growth
Inflation
Interest Rate
Pragmatic
Bonds -> Stocks
USD strengthening
Short-term volatility

19. Global Stock Market The great rotation begin? US ID FR GR JP
*as of 25 November 2016

20. Global Stock Market
The great rotation begin?
*as of 25 November 2016

21. Global Stock Market
The great rotation: short-term or long-term?

22. Domestic Stock Market Where do we stand right now?
JCI is one of the worst performer market since last Septmber.
Nonetheless, up to YTD Indonesia is the second best equity market in the region.
This brings next questions:
How big is the correction risk further?
If it’s small, what fundamental factors that can support JCI?
*as of 25 November 2016

23. Domestic Stock Market Foreign Flow is still directing market movement
*as of 24 November 2016
Since September – YTD’16, the foreign investors recorded outflow amounting to Rp14.5tn with JCI went down 4.3%.
If we compared to May-Juli’13 period, when the foreign outflow reached Rp22.9tn, JCI was punished by 8.9%.

24. Domestic Stock Market Foreign Flow is still directing market movement
In 2013 and 2015, the foreign outflow were Rp20tn and Rp37tn, respectively.

25. Domestic Stock Market YTD Performance
The interest rate sensitive sectors are experiencing the biggest correction in Oct-YTD’16.
While the commodity sector is perceived as safe haven due to USD appreciation.

26. Forecast

27. US Bond Yield Forecast Avg Spread Yield-Inflation Yield-FFR
Inflation-FFR
3.22
1.61
-1.61
1.08
0.91
-0.18
1.16
2.31
1.15
2016
0.57
1.31
0.74
2017F
Inflation 2
Interest Rate
1.8
UST 10Y Yield
2.7

28. ID Bond Yield Forecast Bull Spread: 5 Bear Spread: 7.5 Base Spread:
5.5

29. ID Bond Yield Forecast
Assumpstion: US Bond Yield will move to 2.5% in the short term.

30. JCI Forecast EPS Growth 2017F PE 15.6x 16.8x 5% 5.250 5.600 10% 5.470
5.900
15%
5.720
6.150

31. Factors to Watch in 2017 International: Inflation in US increase
Election in several Europe countries
Domestic
The successful of fiscal policy
The successfull of PPP to build infra projects
Higher inflation (4.5%), commodity price,
Higher bond yield
But stable interest rate

32. Key Data Forecast 2016F 2017F Real GDP Growth 5.0 – 5.1 5.1 – 5.2
IDR/USD
Rp13,300/USD
Rp13,500/USD
BI 7D-RR
4.75
Inflation
3.3
4.2
CAD (% of GDP)
-2.0
-2.2
10Y Bond Yield
7.8 – 8.2
8.2 – 8.5
IHSG
5.000 – 5.260
5.900 – 6.150

33. Thank You