Money Made and Lost in 2016
    Category: Column By : Rainer Michael Preis Read : 800 Date : Wednesday, November 30, 2016 - 11:55:56

    It has been a great year for Indonesian equities. Indonesia is the best performing stock market in Asia and the eighth best performing market worldwide. The Jakarta Composite Index rose 16% in rupiah terms and 22% in U.S. dollar terms. The rally was fueled by interest rate cuts, growth-friendly government policies and low inflation of about 2%. 

    Indonesia’s stock universe comprises 583 stocks and 10 sectors. The average rise year-to-date has been 4.9% but individual sector performances varied. The healthcare sector, with 16 firms, was the star performer, rising 28.6%. Utilities (three stocks) fell 30%, making it the worst performing sector. The oil and gas sector (11 stocks), despite the significant rebound in oil prices, is only flat year-to-date. Telecom (9) is also unchanged for the year. The broad financial sector includes 143 companies and is the largest sector in terms of the number of companies but only increased 1.5%.

    The tech sector (19 stocks) declined 3.7% year-to-date despite the media focus and hype on tech and e-commerce. Industrials with 91 companies rose 1.6% and consumer services with 67 companies rose 4.8% outpaced by the consumer goods sector that comprising 99 stocks and up in line with robust GDP to show 7% gains year-to-date.

    Basic material sector comprises 80 companies and rose 23.2% year-to-date due to investors’ anticipation of “Jokowinomics” major push on infrastructure spending as the government seeks to attract pension funds for equity investments in infrastructure projects. Government is targeting investment to grow more than 10% and consumption growth above 5% in 2018.

    In the price-earnings ratio TTM (blended forward twelve months) the Indonesian investable universe trades at 14.5 times. Due to surging healthcare stocks, it is now the most expensive sector at 50.8, while basic materials is at 20.2. Telecom follows with 18.6, consumer services with 18.4, tech at 15.9, consumer goods at 14.5, industrials at 14.3, utilities at 11.6. Financials with 10.3 are the second cheapest sector after oil & gas with 9.1.

    According to New York University research, Indonesia’s country risk premium now stands at 3.5% and the Indonesian total equity risk premium at 9.7% (or 3.7% above the developed markets average)—compared to 1.9% and 7.9% for Malaysia and 2.9% and 8.9% for Philippine equities. Political developments in the Philippines and the 1MDB scandal in Malaysia might lead to a re-evaluation, with Indonesia overtaking Malaysia and the Philippines on these key investor metrics in 2017.

    In terms of country risk and equity risk premium, Indonesia is below China but comparable to India. China’s country risk premium is 0.9% and equity risk premium of 6.9% and India’s 3.4% country risk premium and 9.4% equity risk premium. In comparison the political risk premium for the U.S. currently still stands at 0% and the U.S. equity risk premium stands at 6%. The U.S. election might not lead to an increase in political risk but might push investor sentiment towards emerging markets.