Credis Suisse Indonesia under-owned, JCI entry at 2,550pts?

ASIAN STRATEGY: Are we seeing signs of capitulation? – Indonesia under-owned
iSay: MXASJ is now 453pts, getting closer to 430 recommended entry level assuming 15% correction due to sound NJA macroeconomics fundamentals. If we apply this to Indonesia, a 15% correction from the JCI all-time high 3,000pts will give us an entry level 2,550pts. I continue to see ST JCI support level at 2,600pts on latest concerns on Global growth, while domestic politics focussing on President SBY to regain control over renewed coalition (new BI Governor and Cabinet Reshuffle are yet to happen).

Today Positive surprise on new MoF is just a relief rally before the market sliding down to 2,680pts, due to concerns on global growth and derisking. On 6 months view, we continue to see Upside from the new law on State banks NPL haircut (Big Positive to BMRI and BBNI, and mild to BBRI). Currently, we are recommending Overweight Indonesia with end-2010F JCI target 3,300pts (implying 16.5x 2010F with) with Top-5 stock picks BMRI, BBRI, SMGR, UNTR & TLKM.

· Sakhti Siva (Report): Heading towards one of the biggest months ever for net foreign selling. Net foreign selling in Emerging Asia (ex. China, ex. Malaysia) has reached US$8.3 bn as of 18 May. This already makes May 2010 the biggest month for net foreign selling since October 2008 (which was associated with US$11.3 bn). Prior to 2008, most tactical corrections were associated with net foreign selling ranging from 0.1% to 0.7% of market capitalisation versus 0.2% so far in May 2010. With Asian sovereign balance sheets in good shape, a fair degree of foreign investor capitulation, we believe a 15% correction to 430 on MXASJ (currently 453) provides an attractive entry level to the Credit Suisse house view of no global double dip.
· While we believe Korea is under-owned on a stock basis, we believe Indonesia is the most under-owned on a flow basis (Figure 4 page 3). We define flow basis as cumulative net foreign buying over the last 12 months as a percentage of market capitalisation. On this measure, Indonesia stands at 0.5% versus the Philippines and Thailand at 0.6%.
· Arief Wana: The appointment of Agus Martowardojo as Indonesia Minister of Finance (MoF) is Big POSITIVE in the political and macro development, despite short-lived relief for the market this morning. Agus Martowardojo has a solid track record in Bank Mandiri's restructuring and known as a brave, hard-working, and market friendly person (investors like him a lot).
· Indonesia domestic structural growth and fundamental story should remain in tact, despite the political set-back. The market is now trading at circa 13.5x 2010F on 20% EPS growth, with RoE stay the highest in the region. Risk on the change in risk appetite may hit rupiah rate, but Indonesia corps are very under-leverage (net gearing below 40%) and our debt-to-gdp is 27% (among the lowest in the region), and 65% of our GDP is private consumption. I would actually turn more positive if the market were to re-treat by around 10% from the current level.