Mandiri Sekuritas Strategy: The rise of small cap

Flat performance in IDX provides a fertile ground for smaller-cap stocks to play. With new offerings expected to flood the market in 4Q, portfolio reconstructions will limit the performance of big- cap stocks, hence opening a wider window for smaller counters to a further run. A milder-than-expected August inflation figure sent another lease of life. With on-month inflation easing in August, we propose small-cap stocks such as industrial land developer KIJA, and mall and property develo! per SMRA. We still like big- cap stocks like BBRI, and LSIP. For those adrenaline junkies, BUMI is another pick with upcoming positive catalysts in the form of non-preemptive rights issue exercise and the planned IPO of its subsidiary Bumi Mineral Resources.

The rise of small cap. No particular fundamental trend observed in the market in August. Sectoral index with bigger composition of small cap tended to outperform. After July worst performance, JAKAGRI (Agriculture, CPO producers) made a comeback, and posted the highest performance by sector index (+3.9% MoM), followed by JAKBIND (Basic Industry) (+3.5% MoM) and JAKPROP (Construction, Property) (+1.6%MoM). Small-cap names ruled with the strongest performance by MAPI (+96.7% MoM). As! the JCI posted a flattish return, retail punters are looking for excitements in the counters with positive fundamental catalysts.

Interest rates are expected to rise, however inflation is seen easing. Consumer Price Index rose by 0.76% mom or increased 6.44% yoy in Aug10 lower than our and consensus estimates. Year-to-date, the CPI has increased 4.82%. Aug10 inflation was mainly driven by electricity tariff hike (0.35ppt) and processed food (0.11ppt). Meanwhile, raw food prices only increased slightly (0.09ppt), as some of the prices have started to decline from their peaks in Jul10 inflation. We expect to see a more hawkish stance in BI policy statem! ent, as there some indication that demand started to stoke inflation and inflation expectation is building up, indicating by a steady increase in core inflation. Trade balance turned deficit in Jul10 of US$0.13bn, as export stabilized (29.0% yoy) and imports surged (45.3% yoy). Despite the persistent trend, the deterioration in trade balance may not have directly put pressure on the currency as we believe it will be compensated by capital inflows.

Our MAPI August recommendation was the best monthly gainer. Up 96.7% MoM, MAPI posted the strongest monthly performance. The other strong gainers were paper maker TKIM (+55.6% MoM) and tire maker GJTL (+39.8% MoM) Easing inflation number put past on wayward inflation threat, hence strengthens confidence in measured interest rate hike. Hence we still like property and banks.