Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

<ul>
<li>With the IDR stabilizing and inflation abating to 2.5%YoY in Jun'24, we expect a 25bp cut in the policy rate in the Jul-Sep'24 quarter. This should bolster hitherto-weak private consumption. </li>
<li>The fiscal deficit was a modest 2.2% of GDP in Apr'23-Mar'24; 'Prabowo risk' won't be manifest until 2025. Until then, liquid banks (L-D ratio 86.5%) are well-positioned to drive growth. </li>
<li>At 11.75x, the equity market's trailing P/E ratio is far below its 20-year mean of 16.16x. Given the stable macro backdrop, we recommend going Overweight Indonesian equities. </li>
</ul>


With the IDR stabilizing and inflation abating to 2.5%YoY in Jun'24, we expect a 25bp cut in the policy rate in the Jul-Sep'24 quarter. This should bolster hitherto-weak private consumption. 
The fiscal deficit was a modest 2.2% of GDP in Apr'23-Mar'24; 'Prabowo risk' won't be manifest until 2025. Until then, liquid banks (L-D ratio 86.5%) are well-positioned to drive growth. 
At 11.75x, the equity market's trailing P/E ratio is far below its 20-year mean of 16.16x. Given the stable macro backdrop, we recommend going Overweight Indonesian equities. 


Indonesia: Macro Stability and Attractive Valuations Create a Buying Opportunity

<ul>
<li>Although the fiscal deficit declined to 1.6% of GDP in 2023, markets are pricing in risks arising from President-elect Prabowo's possible resort to fiscal profligacy in pursuit of 8% growth. </li>
<li>More tangibly, with exports declining 7.5%YoY and imports up 1.1%YoY in Q1CY24, the trade surplus shrank to US$7.3bn (from Q1CY23's US$12.11bn), likely widening the CAD (from Q4CY23's 0.4% of GDP).   </li>
<li>With IDR depreciating 9.3%YoY, BI hiked its policy rate by 25bp last week to pre-empt imported inflation. Another rate hike is likely before Oct'24, so we would Underweight Indonesia. </li>
</ul>


Although the fiscal deficit declined to 1.6% of GDP in 2023, markets are pricing in risks arising from President-elect Prabowo's possible resort to fiscal profligacy in pursuit of 8% growth. 
More tangibly, with exports declining 7.5%YoY and imports up 1.1%YoY in Q1CY24, the trade surplus shrank to US$7.3bn (from Q1CY23's US$12.11bn), likely widening the CAD (from Q4CY23's 0.4% of GDP).   
With IDR depreciating 9.3%YoY, BI hiked its policy rate by 25bp last week to pre-empt imported inflation. Another rate hike is likely before Oct'24, so we would Underweight Indonesia. 


Indonesia: Prabowo Risk Beginning to Hurt IDR, Requiring Tighter Money

Cross Asset Strategy

<ul>
<li>Prabowo, a controversial ex-general accused of human rights abuses in Jakarta and East Timor during Suharto's era, looks likely to win the presidential election, with Jokowi's son Gibran as running-mate. </li>
<li>Gibran's presence has shifted the parliamentary polls by 10pp in favour of Prabowo's party, Gerindra, likely making it the largest at the expense of PDI-P-- winner of all previous elections.</li>
<li>Post-Oct'24, policy is likely to become more mercurial, fiscally imprudent, growth- and inflation-oriented. Markets are likely to be turbulent after initial celebration of a decisive outcome. We urge caution. </li>
</ul>


Prabowo, a controversial ex-general accused of human rights abuses in Jakarta and East Timor during Suharto's era, looks likely to win the presidential election, with Jokowi's son Gibran as running-mate. 
Gibran's presence has shifted the parliamentary polls by 10pp in favour of Prabowo's party, Gerindra, likely making it the largest at the expense of PDI-P-- winner of all previous elections.
Post-Oct'24, policy is likely to become more mercurial, fiscally imprudent, growth- and inflation-oriented. Markets are likely to be turbulent after initial celebration of a decisive outcome. We urge caution. 


Elections Likely to Hand a Decisive Mandate to Strongman Prabowo

<ul>
<li>With a positive real policy rate of +2.23% and 3.5% appreciation of IDR ytd, BI was comfortably able to keep its policy rate unchanged despite this week's US rate hike.  </li>
<li>Despite the commodity price correction, Indonesia will likely post a 2023 current account surplus of 0.2% of GDP; its fiscal deficit was 1.6% of GDP in the latest 12 months. </li>
<li>The equity market is trading at a trailing P/E of 14.7x, marginally below its 30-year mean. With RGDP of 5% in 2023 and 5.5% in 2024, we recommend being Overweight. </li>
</ul>


With a positive real policy rate of +2.23% and 3.5% appreciation of IDR ytd, BI was comfortably able to keep its policy rate unchanged despite this week's US rate hike.  
Despite the commodity price correction, Indonesia will likely post a 2023 current account surplus of 0.2% of GDP; its fiscal deficit was 1.6% of GDP in the latest 12 months. 
The equity market is trading at a trailing P/E of 14.7x, marginally below its 30-year mean. With RGDP of 5% in 2023 and 5.5% in 2024, we recommend being Overweight. 


Indonesia: Attractively Valued Amid Good Growth with Low Inflation and CA Surplus

ASEAN Exchanges

Gateway to ASEAN Investment

ASEAN Exchanges is a collaboration among the exchanges in the ASEAN countries with the objectives of promoting greater integration of the ASEAN capital markets, enhancing the visibility of ASEAN as an asset class, and strengthening ASEAN as an attractive investment destination for both ASEAN and global investors.

Current participating ASEAN exchanges (“Member Exchanges”) are Bursa Malaysia Berhad, Indonesia Stock Exchange, The Philippine Stock Exchange, Singapore Exchange, The Stock Exchange of Thailand, and Vietnam Exchange.

<ul><li>China’s rise as a global manufacturing hub was fueled by WTO accession in 2001, supported by export-friendly policies, low-cost labor, and rapid infrastructure development.</li><li>A 1994 currency devaluation and a shift to value-added goods boosted productivity as labor costs increased.</li><li>Since the mid-2010s, rising costs and geopolitical factors have driven supply chains to Southeast Asia.</li></ul>

China’s rise as a global manufacturing hub was fueled by WTO accession in 2001, supported by export-friendly policies, low-cost labor, and rapid infrastructure development.A 1994 currency devaluation and a shift to value-added goods boosted productivity as labor costs increased.Since the mid-2010s, rising costs and geopolitical factors have driven supply chains to Southeast Asia.

The Shift Of Supply Chains From China To Southeast Asia

Indonesia

iShares MSCI Indonesia ETF is an exchange-traded fund incorporated in the USA. The ETF seeks investment results that correspond to the performance of the MSCI Indonesia Investable Market Index.

iShares MSCI Indonesia ETF (EIDO US)

Indonesia: Macro Stability and Attractive Valuations Create a Buying Opportunity

Equity valuations (11.75x trailing PER) are attractive (vs 20yr mean of 16.2x). Shrinking CAD helps stabilize IDR, likely allowing a rate cut this...

Prasenjit K. Basu

Indonesia: Prabowo Risk Beginning to Hurt IDR, Requiring Tighter Money

Despite a smaller fiscal deficit (1.6% of GDP) in 2023, markets are pricing in "Prabowo risk". The switch to a current account deficit will...

Prasenjit K. Basu

Elections Likely to Hand a Decisive Mandate to Strongman Prabowo

Controversial ex-general Prabowo is poised to win the presidential election with Jokowi's son as his running-mate, potentially leading to unstable...

Prasenjit K. Basu

Indonesia: Attractively Valued Amid Good Growth with Low Inflation and CA Surplus

With a real policy rate of +2.23% & 3.5% IDR appreciation ytd, BI saw no need to match the US rate hike. Solid 5%+ RGDP growth with a CA surplus...

Prasenjit K. Basu

The Shift Of Supply Chains From China To Southeast Asia

China’s rise as a global manufacturing hub was fueled by WTO accession in 2001, supported by export-friendly policies, low-cost labor, and rapid...

ASEAN Exchanges

Indonesia: Macro Stability and Attractive Valuations Create a Buying Opportunity

Equity valuations (11.75x trailing PER) are attractive (vs 20yr mean of 16.2x). Shrinking CAD helps stabilize IDR, likely allowing a rate cut this...

Prasenjit K. Basu

Indonesia: Prabowo Risk Beginning to Hurt IDR, Requiring Tighter Money

Despite a smaller fiscal deficit (1.6% of GDP) in 2023, markets are pricing in "Prabowo risk". The switch to a current account deficit will...

Prasenjit K. Basu

Elections Likely to Hand a Decisive Mandate to Strongman Prabowo

​Controversial ex-general Prabowo is poised to win the presidential election with Jokowi's son as his running-mate, potentially leading to unstable...

Prasenjit K. Basu

Indonesia: Attractively Valued Amid Good Growth with Low Inflation and CA Surplus

With a real policy rate of +2.23% & 3.5% IDR appreciation ytd, BI saw no need to match the US rate hike. Solid 5%+ RGDP growth with a CA surplus...

Prasenjit K. Basu

The Shift Of Supply Chains From China To Southeast Asia

China’s rise as a global manufacturing hub was fueled by WTO accession in 2001, supported by export-friendly policies, low-cost labor, and rapid...

ASEAN Exchanges

Controversial ex-general Prabowo is poised to win the presidential election with Jokowi's son as his running-mate, potentially leading to unstable...