We believe that Indonesia will continue to outperform rising markets
due its valuations and high beta (inexpensive cyclicals). Despite the
rally year to date, Indonesia is still one of the least expensive markets.
Our top stock picks are high beta names – Astra, UT, Indofood, PGAS
and BBRI – while our least-preferred picks are expensive resources.
We have also identified six additional thematic ideas.
■ We believe that private consumption has not only been resilient in the
recent downturn, but has also shown a trend toward bottoming out.
This conclusion is explained by our top-down (income, expenditure
and macro) and bottom-up (low- and big-ticket performance) analyses.
■ A strong corporate balance sheet, with much lower exposure to forex
and low gearing versus 1997-98, is key to withstanding economic
hiccups. Also, the banking system is in good shape, being well
capitalised with low leverage (low LDR and loan-to-GDP) ratios.
■ What to expect from President Bambang Susilo Yudhoyono’s (SBY)
upcoming and last term? SBY is intelligent, well-educated, clean, less
confrontational and has strong foreign relationships. His dominant
votes (now with his chosen vice president, Mr Beodiono – ex-central
governor) should allow him to run a bigger mandate. We believe the
SBY-Boediono team will be seen positively by the market.
■ Indonesia is least exposed to exports, though the rupiah remains
subject to risk appetite. Meanwhile, the BOP, exchange rate policy, and
fiscals are performing well.