STRATEGY REPORT - Expecting further upside in March

 

 

The JCI gain 6.5% in February, in-line with expectation

In February, the JCI index has risen 380 points (6.5%) from 5,862 on January 29 to 6,242. This is in line with our expectation that JCI performance would be better in February after declining by 2% in January. We see investors are increasingly making a bet on a few names that have enjoyed huge rallies but are not covered by analysts. This included ARTO which rose 49% contributing 34 points to JCI gain followed by newly IPO stocks such as BANK (+1,367%, 23 points) and DCII (+81%, 13 points). A strong rebound in index heavyweights stocks like BBRI (+13%, 25 points) and TLKM (+12%, 22 points) also contributed to rally. Our topics only generated 2.7% return (equal weight). On the weak side, BULL was down 16.8% as it was initially included among stocks to be revoked from margin list and potential 4Q20 earnings miss while BMRI, TBIG and MYOR declined by 6.5%, 3.1% and 2.9%, respectively. Our other top picks, BBRI (+13%), TLKM (+12%), MDKA (+11%), ANTM (+9%) and MEDC (+8%) managed to outperform the JCI. For 2M21, our portfolio increased by 5.3%, slightly outperforming the JCI return of 4.5%.

 

Foreigners remain net buyers in February 

Foreign investors remained net buyers in Indonesia equity markets for a two straight month in February, putting in a net amount of USD1.03 bn so far. In Asia (ex-Japan), foreign investors sold net of local equities from Korea (USD7.0 bn), Taiwan (USD6.6 bn), Thailand (USD986 mn), Malaysia (USD464 mn), Philippines (463 mn) and Vietnam (USD287 mn). We believe these outflows came in light of rising US treasury yields and fluctuating US Dollar Index in general. Locally, we believe those external hiccups were partially offset by positive sentiments from stronger-than-expected Indonesia GDP for 2020, which contracted 2.07% YoY vs. consensus estimate for a 2.10 YoY drop and declining trend in Covid-19 daily cases (Exhibit 3).          

 

Remain positive in March but gain might be capped by UST jitters

The Covid-19 pandemic continues to be a major theme, but the focus has largely shifted from the number of cases (and deaths) to the number of people who have been vaccinated. As of late February, a total of 1.6 mn Indonesian have received the vaccine, with around 1 mn already getting double shots. The vaccine rollout could give investors some reason to be optimistic in addition to optimism on macro recovery. However, investors should brace for continued market volatility as global stocks could fluctuate on the US Treasury (UST) yields rally on expectations of US stronger economic growth and higher inflation. UST yields are likely to continue to rise but the advance will be checked by the Federal Reserve at some point as it will affect public and private sector leverage. Since February 10, 10-year Treasury yields have moved from 1.13% to as high as 1.54%, the highest level in a year which will likely mean a temporary retracement Rupiah that depreciated 0.7% YTD against USD to 14,235 (Exhibit 3). Therefore, we expect the JCI to continue its rally in March but might be at slower rate than February. 

 

Add ASII to our portfolio, remove MYOR 

We are removing MYOR from our portfolio this month, as we see no catalyst for the stock prices in the near term. We are adding Astra International (ASII) as we recently raised TP and rating for Astra. We see catalyst would come from the new model and temporarily cut of luxury tax (PPnBM) for car. We retain BULL in our top picks despite its underperformance in February as we expect 2020 earnings will still be more than double despite 4Q20 earning likely to miss expectation on lower-than-expected rate.  Our other stock picks remains BBRI, BMRI, TLKM, TBIG, ANTM, MDKA, and MEDC.