Where else in Asia are investors able to capture a yield over 10% with falling inflation and an appreciating currency?
A great piece from Nick Cashmore today. The rupiah bond spreads over Indo govt US$ bonds have widened from 150bps to 300 bps. Market rates have not fallen as much as policy rates. We think this is primarily because Bank Indonesia is not engaging in QE.
Going forward, expect the spread between Indo govt US$ and rupiah yields to narrow. We believe inflation will fall to 3% this year.
The obvious play is interest rate sensitive stocks. However, Indo bigger banks don’t look cheap anymore, after the rally. BBRI is trading at 2.8x P/B and BBCA is at 3.1x P/B. Property sector can be an interesting alternative. It is still trading at a 60% discount to NAV, despite the sharp recovery in stock prices this year (from depressed levels).
After a 6-month lull, marketing sales are picking up again. CTRA’s marketing sales are picking up again, +150% QoQ in 1Q09, although they are still half the peak sales in 1Q08.
But more importantly, there is still strong underlying demand for residential property. Every 5 years, the number of Indonesian households grows by 4.7mn. Moreover, mortgage to GDP is only 2%, suggesting it can only go up.
Top picks in the property sector: CTRA, SMRA, ELTY, BSDE, and KIJA.
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