In this briefing:
- IDR, CPI, Oil, Trans-Java & Freeport Strengthen Widodo / Lippo Case Escalates / Efta Cepa / Debates
- EM Relative Strength Is Bottoming: Overweight
- Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
- RRG Global Macro – US Fed Positive Outlook – Stocks Fall. Politics Take Over from Fundamentals
- Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships
1. IDR, CPI, Oil, Trans-Java & Freeport Strengthen Widodo / Lippo Case Escalates / Efta Cepa / Debates
Prabowo has yet to dent Widodo’s 20-point lead in polls and, meanwhile, certain key macro-economic figures are finally swinging in the incumbent’s favor. Jakarta and Surabaya are linked by toll road — after decades of work. The Freeport mine nationalization went through, benefiting Widodo (but possibly no one else). The Efta Cepa bodes well for other trade agreements in the works. The Lippo Group scandal is escalating, but not yet affecting James Riady. PT Toba Sejahtera Tbk suffered damaging NGO scrutiny. Electoral authorities set the presidential debate schedule.
Politics: Recent economic trends, such as inflation, the exchange rate and the price of oil, are benefiting President Joko Widodo. Employment is an area where the president remains vulnerable, but Prabowo Subianto’s new television ads on the topic may be backfiring. Prabowo has focused on lamenting the lack of professional careers for college graduates – a remote concern for the bulk of voters (Page 2). The General Election Commission (KPU) has secured agreements from the two presidential campaigns regarding topics and formats for televised debates in the coming months. The challenge for Widodo will be to shield his running mate from questions on matters beyond his narrow field of Islamic jurisprudence (p. 2). After prolonged wrangling with Gerindra, the Islamic Justice Welfare Party (PKS) finally named two nominees for vice governor of Jakarta; neither seem dynamic (p. 4).
Surveys: President Joko Widodo’s 20 percentage-point lead remained intact through the second week of December, according to a credible poll (p. 5).
Justice: Anti-Corruption Commission (KPK) officials are scrutinizing State Minister for Sports and Youth Imam Nahrawi, after having arrested a deputy state minister for alleged kickbacks on grants to the National Sports Committee (Koni). The affair could become an embarrassment for Widodo (p. 5). KPK officials indicated the likelihood of pursuing a former Lippo Cikarang president director, but they have not yet conveyed any such signals about investigating group owner James Riady (p. 6). An NGO alliance highlights conflicts of interest on the part of Coordinating Maritime Affairs Minister Luhut Panjaitan (p. 7).
Policy News: Officials signed a comprehensive partnership (Cepa) with four European states (including Switzerland and Norway) (p. 9). The transaction to nationalize the Freeport mine concluded on 21 December. The deal will benefit Widodo (and perhaps him alone) (p. 10).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>. |
Infrastructure: The linkage of the Trans Java Toll Road – first envisioned in 1978 – finally occurred on 20 December. Opposition figures, noting that previous administrations had put the plans in place, dispute how much credit should accrue to Widodo; in fact, he was the first to expedite land acquisition and thereby overcome the chief obstacle (p. 12).
2. EM Relative Strength Is Bottoming: Overweight
Relative strength for MSCI EM is bottoming vs. MSCI EAFE despite continued global equity market weakness. Although the MSCI EM’s price index remains in a downtrend, we are seeing signs of outperformance ona a relative strength basis and would add incremental exposure. In this report we highlight attractive and actionable themes within EM.
3. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
In a follow up to my note from last year Overview of My Winners and Losers in 2017…and 5 High Conviction Ideas Going into 2018 I again look at my stock ideas that have worked out in 2018, those that have not and those where the verdict is still pending.
Last year I provided 5 high conviction ideas and here is their performance in a brutal year for Asian Stock Markets:
Company | Share Price 27 Dec 2017 | Share Price 20 December 2018 | Dividends | % Total Return |
0.70 HKD | 0.88 HKD | 0.01 HKD | +27% | |
0.20 SGD | 0.27 SGD | 0.0 SGD | +35% | |
2.39 HKD | 2.82 HKD | 0.147 HKD | +24% | |
0.84 SGD | 0.85 SGD | 0.02 SGD | +3.5% | |
1.44 MYR | 0.32 MYR | 0.0 MYR | -79% |
4 out of 5 had a positive performance.
Below I will make a new attempt to provide five high conviction ideas going into 2019.
4. RRG Global Macro – US Fed Positive Outlook – Stocks Fall. Politics Take Over from Fundamentals
- US: Stocks fall on political turmoil despite positive noises from the Fed with a dovish rate hike, a reduction in expected 2019 hikes and positive trends on employment and inflation.
- Russia: Unexpected 25 bps rate hike in the face of higher inflation in Nov. Watch for impact of lower oil prices in coming quarters.
- Turkey: Economic developments remain negative. The outlook for retail sales is poor as the economy in general is faltering.
- Indonesia: Trade deficit in November. Exports down 3.3%; imports up 11.68%. This disappointing performance could be the beginning of a trend.
5. Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships
- We’ve reviewed 10 companies in the sector. Of those, three are the consensus favorites of our Tokyo based panel of industry, financial and economics observers of the IR initiative over many years.
- Based on pachinko alone, the stocks of these companies are fully valued. Based on potential tailwind from a license award within 6 months, they could be vastly undervalued.
- Each of the three noted here brings strength to a bid less based on financials than corporate focus, outlook and experience in the field.
