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Stock Index
Bahana Securities

18 Dec 2018 | 02:42 WIB
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18 Dec 2018 | 02:42 WIB
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From strength to strength

Accompanied by Sri Mulyani, Finance Minister, and Agus Martowardojo, Central Bank Governor, President Jokowi visited the Jakarta Stock Exchange (IDX) on 4 July and commented that the level of the Jakarta Composite Index (exhibit 5) reflected confidence and trust of market participants in the economy. Following upgrades from S&P and Moody’s, Jokowi expects the index to break the 6,000 level, in line with our year-end target of 6,300, which is based on a re-rating of the 2017F market PE to 20x from 18.5x currently (exhibit 1).

Jokowi also mentioned that in his overseas trips, investors continued to be concerned about Indonesia’s political situation. In his view, Indonesia needs to move on as too much energy has been wasted on politics. Going forward, he hopes the country can focus on productive issues and keep pace with technological development in order to help raise the incomes of fishermen and farmers. Finally, without being specific, Jokowi would like to see Indonesian companies listed overseas, but not on the IDX, list on the local bourse.

BI governor, Agus Martowardojo, expected 2Q17 GDP growth to be slightly on the soft side, mainly due to government spending which was not optimal and the close occurrence of Lebaran festivities and the back-to-school season. Nevertheless, he expects the 2Q17 GDP performance, helped by some contribution from investments, to be better than in 1Q17 which came in at 5.01%. He also noted that a 5%+ GDP growth should also be higher than for most regional peers. Separately, we note that the government has recently revised up its 2017 GDP growth estimate from 5.1% to 5.2% (Bahana: 5.3%).

The central bank governor also stated that Indonesia is currently enjoying all-time high FX reserves of USD125bn (exhibit 3) while on the inflation front, he expects the 2018 CPI to be well anchored at 3.5% +/-1%. In our view, infrastructure improvements coupled with the government's measures to control various staple prices are likely to keep inflation under control. Note that while the June 2017 inflation reached 4.37% y-y driven mainly by higher transportation costs, food inflation was lower at 0.69% m-m (May: 0.86% m-m). We also note that core inflation remained low at 3.13% y-y (May: 3.20% y-y). The government is currently implementing a higher tariff for 900VA users, but has no plan to increase electricity tariffs further. For July, although we expect another seasonally-high inflation reading with m-m inflation of 0.4-0.5%, we expect overall inflation to remain manageable this year at 4.4%.

Finance Minister, Sri Mulyani, commented that Indonesia plans to maintain its recent investment upgrade momentum through continued implementation of fiscal policy credibility. This will be done through continued: (1) tax reforms (wider tax base and improved governance), (2) prudent spending, and (3) containment of the budget deficit. On the latter, the government expects a 2.6% budget deficit this year, up from 2.4% previously, but still well below the 3% limit.

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