Strategist Joshua Tanja believes investors would benefit from JCI’s near-term correction to accumulate quality names in the market for the longer-term, as Indonesia’s structural growth story remains intact.
Joshua sees the current JCI correction to be driven by cyclical factors: 1) recent strong equity market performance; 2) discouraging inflation data; 3) potential increase in LT bond yield; 4) high foreign ownerships in the equity market; 5) unexciting Q210 results; and 6) equity market valuations. Indonesia’s fundamentals, however, remain unscathed – 1) healthy balance sheets for the government, corporate and even the consumers; 2) low LDR in the system; 3) attractive and youthful demographics; and 4) continued reforms momentum – which will continue supporting a positive environment for sustainable economic growth.
To outperform market’s near-term corrections, Joshua recommends the following stocks:
Bank Mandiri (BMRI Buy PT 7,600) – beneficiary of rising inflation and interest rates.
Jasa Marga (JSMR Buy PT 3,100) – higher inflation to drive higher toll-tariffs.
XL Axiata (EXCL Buy PT 5,500) – strong positioning for revenue and market share gains.
Adaro Energy (ADRO Buy PT 2,700) – strong production growth, well-funded expansion plans.
London Sumatra (LSIP Buy PT 13,500) – efficiency gains, CPO price rally in H210.
Risk to our view: Sustained disconnect between Indonesia’s bond and FX markets against the JCI, despite worse-than-expected inflation data, which could shorten the correction in the equity market.
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