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>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

Research Analyst

Ilvin Cornelis

Thematic (Sector/Industry)

The Otoritas Jasa Keuangan/OJK (The Financial Services Authority) in Indonesia releases data for the banking sector every month. This initial insight highlights our observation on the banking sector’s key metrics during January 2020 – June 2021, which should capture the developments of the banking sector since the beginning of the economic downturn.
The banking sector has received more deposits from customers during January 2020 – June 2021 (an average of +10% YoY in each month), while loan demand has just recently improved by 0.6% YoY in June 2021, after eight months of consecutive decline on YoY basis. The weak loan growth was mostly driven by the wholesale &amp; retail trade and the manufacturing industries (accounted for 33.2% of loans). Consequently, the LDR ratio has fallen to its lowest levels in June 2021 (at 80.1%), from around 92% in the first quarter of 2020. The last time LDR touched similar low level was ten years ago in 2011.
The NPL ratio has improved to 3.24% in June 2021, after peaking in the previous month at 3.35%. However, this latest figure is still much higher than the NPL ratio during the first quarter of 2020, at around 2.8%. The banking sector has consistently reported larger loan loss reserves in its balance sheet, tilting the loan loss coverage ratio to reach an all-time high of 186% in June 2021, from an around 162% at the beginning of 2020.
Under the current operating environment, the banking sector has placed more of its excess funds with the Central Bank (Bank Indonesia) and increased its holdings in less-risky securities. Moreover, the banking sector has managed to increase its capital base and improved its CAR to around 24% during March – June 2021, from around 22% in the first half of 2020.
<section class="figure"></section>
NIM has improved to 4.7% in June 2021, from its lowest levels in March 2020, at 4.3%. The improvement in NIM can be attributed mostly to the widening of net interest rate spread. Given the lower benchmark interest rate (3.5%) and shrinking LDR in the banking sector, the cost of funds has fallen faster than lending rates, causing the spread to widen.
We are positive about the outlook of Indonesia’s banking system given its resilience amid a difficult operating environment. We foresee profitability to improve and loan demand to pick up, as recovery takes place in the wholesale &amp; retail trade industry and the manufacturing industry, going forward.

The Otoritas Jasa Keuangan/OJK (The Financial Services Authority) in Indonesia releases data for the banking sector every month. This initial insight highlights our observation on the banking sector’s key metrics during January 2020 – June 2021, which should capture the developments of the banking sector since the beginning of the economic downturn.
The banking sector has received more deposits from customers during January 2020 – June 2021 (an average of +10% YoY in each month), while loan demand has just recently improved by 0.6% YoY in June 2021, after eight months of consecutive decline on YoY basis. The weak loan growth was mostly driven by the wholesale &amp; retail trade and the manufacturing industries (accounted for 33.2% of loans). Consequently, the LDR ratio has fallen to its lowest levels in June 2021 (at 80.1%), from around 92% in the first quarter of 2020. The last time LDR touched similar low level was ten years ago in 2011.
The NPL ratio has improved to 3.24% in June 2021, after peaking in the previous month at 3.35%. However, this latest figure is still much higher than the NPL ratio during the first quarter of 2020, at around 2.8%. The banking sector has consistently reported larger loan loss reserves in its balance sheet, tilting the loan loss coverage ratio to reach an all-time high of 186% in June 2021, from an around 162% at the beginning of 2020.
Under the current operating environment, the banking sector has placed more of its excess funds with the Central Bank (Bank Indonesia) and increased its holdings in less-risky securities. Moreover, the banking sector has managed to increase its capital base and improved its CAR to around 24% during March – June 2021, from around 22% in the first half of 2020.

NIM has improved to 4.7% in June 2021, from its lowest levels in March 2020, at 4.3%. The improvement in NIM can be attributed mostly to the widening of net interest rate spread. Given the lower benchmark interest rate (3.5%) and shrinking LDR in the banking sector, the cost of funds has fallen faster than lending rates, causing the spread to widen.
We are positive about the outlook of Indonesia’s banking system given its resilience amid a difficult operating environment. We foresee profitability to improve and loan demand to pick up, as recovery takes place in the wholesale &amp; retail trade industry and the manufacturing industry, going forward.

Indonesia’s Banking Sector: Data Shows Improvements (Positive)

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/jardine-cycle-carriage-ltd" target="_blank" data-smartkarma-citation="entities:347:1" rel="noopener">Jardine Cycle &amp; Carriage (JCNC SP)</a> is currently trading at a ~9% discount to NAV, around the narrowest since the post-Covid nadir in April 2020.</li>
<li>JCNC's recent results highlighted a marked improvement in its unlisted Vietnamese automotive ops. </li>
<li>Weakness in the Indonesian rupiah has taken some of the shine off <a href="https://www.smartkarma.com/entities/astra-international-tbk-pt" target="_blank" data-smartkarma-citation="entities:46:1" rel="noopener">Astra International (ASII IJ)</a>'s strong sales growth. </li>
</ul>



Jardine Cycle &amp; Carriage (JCNC SP) is currently trading at a ~9% discount to NAV, around the narrowest since the post-Covid nadir in April 2020.
JCNC's recent results highlighted a marked improvement in its unlisted Vietnamese automotive ops. 
Weakness in the Indonesian rupiah has taken some of the shine off Astra International (ASII IJ)'s strong sales growth. 


Indonesia

The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange. The index was developed with a base index value of 100 as of August 10, 1982. Please look at CDR JA<GO> for exchange trading days.

Jakarta Stock Exchange Composite Index (JCI INDEX)

Jakarta Stock Exchange Composite Index (JCI INDEX)

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

Indonesia’s Banking Sector: Data Shows Improvements (Positive)

Latest data for Indonesia's banking sector shows that NIM has improved and loan growth has finally turned positive on a YoY basis.

Ilvin Cornelis

JCNC Is Overstretched Vs. Astra

If you had set up the stub, I would be unwinding here. I'd look to reverse the stub as and when the current momentum reverses.

David Blennerhassett

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

Indonesia’s Banking Sector: Data Shows Improvements (Positive)

Latest data for Indonesia's banking sector shows that NIM has improved and loan growth has finally turned positive on a YoY basis.

Ilvin Cornelis

JCNC Is Overstretched Vs. Astra

If you had set up the stub, I would be unwinding here. I'd look to reverse the stub as and when the current momentum reverses.

David Blennerhassett

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