UBS Indonesia Market Strategy A Market Buying Opportunity

􀂄 Negative sentiment surrounding MoF resignation is a buying opportunity.
We believe the market correction following the resignation of Indonesia Minister of Finance Sri Mulyani and the likely near-term market volatility anticipating her replacement - represents an additional buying opportunity for two reasons. With a potentially more cohesive coalition, some market reforms can progress. Secondly, given structural factors, we believe reasonably high and sustainable economic growth is still within reach for Indonesia.

􀂄 Sri Mulyani –Indonesia foremost reformer– resigned
Indonesia foremost reformer has resigned as the Minister of Finance. It may be viewed as a negative surprise for the market, indicating the difficulties in pushing through reform. However, the market correction has been orderly, and it could create a more harmonious ruling coalition thus increasing the chances of the government pushing through certain market reforms.

􀂄 An additional buying opportunity.
After this week correction, the market now trades at 13.4x 12m forward PER. Our top picks are Bank Rakyat Indonesia, Key Cal Perusahaan Gas Negara, Semen Gresik, Adaro Energy, London Sumatra and Summarecon Agung.

􀂄 Upgrade 12 month index target to 3200 from 3025
Unrelated to the above event, we upgrade our 12m index target to 3200 from 3025 to reflect 5% potential EPS upgrades and a market re-rating from 11.9x to 13x 2011E given liquidity inflows. As a check, the bottom-up summation of price targets of stocks under our coverage universe results in a JCI 3175 level.