A Cup of Tea 21 May'10

We are still put 3050 for year-end, aren’t we? … How Low?

From The Global
The Global Stocks took their deepest plunge in more than a year Thursday as fears grew that Europe's debt crisis could spread around the world and undermine the U.S. economic recovery. The Dow Jones industrial average fell 376 points or 3.6% to 10,068.01, its biggest point drop since February 2009. All the major indexes were down well over 3 percent and are now showing losses for 2010. Interest rates fell sharply in the Treasury market as investors once again sought the safety of U.S. government debt. The VIX closed at 45.79, nearly three times its 2010 low of 15.73, reached April 20. But it's about half of the record high of 89 it reached in October 2008 at the height of the financial crisis.

Our Economic
Indonesia’s GDP grew at a 5.7% YoY rate from last year’s first quarter. Indonesia’s credit growth is one of its most important drivers, contributing at least one-third of economic growth. Loan-growth trend is already encouraging. Indonesian banks' balance sheets are robust with a low average loan-to-deposits ratio. Against the backdrop of high consumer confidence in Indonesia, banks are also increasingly willing to lend and this should drive economic growth.

Indonesia an upgrade in its sovereign credit rating to BB from BB- by S&P in March 2010. The S&P rating also comes with a positive outlook, suggesting a bias toward further upgrade in the next six to 18 months.

What about Our Market for Today?
I think our market is likely to continue their aggressive decline for today. The market slides into correction territory, weakness in euro zone countries and a slowdown in the US and other developed countries will make things even more difficult for our market in the months ahead.

Mutual fund managers have virtually no cash—they're fully invested. In order to handle redemptions, that requires them to sell stock to raise cash. That selling is going to add more selling pressure to the market. Prices in both stocks and commodities are likely to take a hit, and investors may only be safe in cash.

The trend has changed from a couple weeks ago when we finally peaked out. Volatility is increasing here in the market. There's a lot more fear versus the complacency we had back then. While technical levels will trigger selling programs. To be sure, not everyone was looking on the recent correction-level drop as bad thing.

From Technical Analysis, I believe support 2650 will break for today and the next stop will at 2604 and 2580 level.

What Should We Do?
Yes, I still believe with our fundamental economic but fair enough if we stay in cash for a while just for anticipating situation. I will wait and see or switching to defensive stock. And I switch point entry from JSX 2650 to 2580 which is at 10.5x PE2011 for investment grade. And I still put 3050 for year end target.

Bang Juntri
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