JPM Indonesia Equity Strategy _ Currency + commodities = reviving domestic interest

Improving currency and commodities outlook reviving domestic interest:
We believe that lower currency risk along with an apparently improving commodities outlook (commodity funds saw their secondlargest monthly inflow in February) are bringing domestic investors back to Indonesian equities. Volumes traded by domestic brokers (about 70% of total volumes) have surged almost 50% in recent days. Domestic interest had thinned since October, and we flag this as positive for market volumes and demand for equities.

Our top three picks are PGAS, UNTR, and BRI: Improving domestic interest and the prospect of lower currency risk point to potential upside from Indonesian equities, especially if sentiment on commodities continues to improve. We recommend PGAS & UNTR, which we believe are low-risk ways to play recovering energy prices, with upside surprise possibilities on FY09E earnings. Our top pick among the banks is BRI, which we see outpacing industry loan growth. For investors looking for direct commodities exposure, our picks are ITMG and PTBA. Politics is a risk with elections around the corner, but recent surveys suggest a positive outcome favoring president SBY.