JP Morgan - Peripheral Europe, Sri Mulyani

One man (or woman) cannot change the faith of one country. Indonesian equities and bonds have benefited from reversal of risk perception towards IDR and the Asian currencies. Interest rate differential has invited fund flow into the country. Indo sovereign rating has been upgraded because on relative basis, the country continues to move up the rank (equally important driver is the worsening macro position in other countries - rating is a relative game). One of Indonesia's major achievement in the past three years is the widening of tax base and improved tax collection. Sri Mulyani plays her part obviously, but in my view the biggest credit should go to president SBY's political will. Contrary to market perception, Indonesia has its fair share of quality think thank, but political will (or the lack of it) has often been the biggest stumbling block. Fiscal prudence is one of Sri Mulyani's key success story, but isn't the problem is about government spending that continues to miss target because of KPK (anti-corruption body) fear? The biggest question for me right now is whether we will see a prolonged reversal to short USD/Asia currencies view. If not, then watch for big buying opportunities in domestically oriented stocks in Indonesia (ie: cements, banks, ASII, consumers).

The four big cap picks that may appear on the value screen the soonest:
* Telkom Indonesia (TLKM) - 10.7x and 8.9x P/E for FY10-11, 5-6% div yld
* Bumi Resources (BUMI) - 15.3x and 11.4x P/E for FY10-11
* Bank Rakyat Indo (BBRI) - 12.4x and 10.1x P/E for FY10-11, 3.1x PBV 28% RoE
* Semen Gresik (SMGR) - 12.9x and 12.6x FY10-11.

* Research call - European rates strategy: Peripheral Europe. Although the Euro110bn multi-year bailout by the EU/IMF has effectively taken Greece out of the funding market until end-2012, it has not stopped the contagion from spreading beyond Greece to other peripheral countries. We were wrong in assuming that announcement of the bail-out package would calm markets. We now believe that contagion will get worse before it gets better since there is no central authority taking decisive action to tackle the problem. Peripheral Europe needs to refund over Euro200bn of debt in the next 3 months. Further contagion from Greece will likely impact Portugal and Ireland first, and Spain and Italy later. In view of extreme volatility, keep positions