In this briefing:
- Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat
- The Week that Was in ASEAN@Smartkarma – Twin Deficits, Bank Mandiri, and the M1 Bid
- Leong Hup IPO Preview: A Game of Chicken
- Widodo, PDI-P Lead / Siregar to DC / Tobin Tax Unlikely / KPK Bomb Scare / Industry Minister Eyed
- Are Chip Oligopolies Real?
1. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat
We noted in Ten Years On – Asia Outperforms Advanced Economies Asia’s economies and companies have outperformed advanced country peers in the ten years to 2017. Growing by 6.8%, real, through the crisis the region is 188% larger in US dollar terms while US dollar per capita incomes 170% higher compared with 2007. In this note we argue even though Asian stock markets have underperformed since 2010 and the bulk of global capital flows have gone to advanced countries, Asia’s time is coming. Valuations are cheap. Growth fundamentals strong. There are few external or internal imbalances. Macroeconomic management has been better than in advanced economies and the scope to ease policy to ward off headwinds in 2019 is greater. China has already started.
2. The Week that Was in ASEAN@Smartkarma – Twin Deficits, Bank Mandiri, and the M1 Bid
This week’s offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
Macro Insights
In Widodo, PDI-P Lead / Siregar to DC / Tobin Tax Unlikely / KPK Bomb Scare / Industry Minister Eyed, Kevin O’Rourke comments on the most significant economic and political developments over the last week.
In his economic insight, Philippines: Time to Mull over the Risks of the ‘twin Deficit’ Syndrome, Jun Trinidad comments on the selling macro imbalances in the Philippines and the risks posed for the economy.
In Philippines: Another CPI Downside Surprise in December, Jun Trinidad comments on the lower than expected inflation figures coming out of the Philippines.
Equity Bottom-up Insights
In Bank Mandiri (BMRI IJ) – Shape Shifting and Millenial Mortgages, circles back to Bank Mandiri Persero (BMRI IJ) following a meeting with management in Jakarta. He sees Bank Mandiri Persero (BMRI IJ) as a key proxy for the Indonesian banking sector, with an increasingly well-diversified portfolio and growing exposure to the potentially higher growth areas of microlending and consumer loans.
In Accordia Golf Trust (AGT SP): MBK + ORIX + AGT = Time for Outperformance? 9.5% Dividend Yield, Nicolas Van Broekhoven circles back to this golfing play and suggests now it a good time to revisit.
In IPS Securex (IPSS SP): Micro-Cap Could Benefit from SG Gov’t HDB Upgrade Program, Nicolas Van Broekhoven revisits this small cap which is a play on Housing Development Board upgrades in Singapore.
In M1 Offer Despatched – Dynamics Still Iffy, Travis Lundy comments on the ongoing offer by Konnectivity for M1 Ltd (M1 SP) and whether we should expect a “bump” in the shares or to sell into the market.
In M1 Ltd (M1 SP): Take the Offer, Axiata Unlikely to Start a Bidding War, Arun George comments on Konnectivity’s bid for M1 Ltd (M1 SP) and suggests taking up the offer.
In PCI Ltd – All Over Before It Starts, Ballingall event-driven specialist David Blennerhassett comments on the ongoing bid for Pci Ltd (PCI SP) and sees it as a done deal.
3. Leong Hup IPO Preview: A Game of Chicken
Leong Hup International (LEHUP MK) is one of the largest producers of poultry, eggs and livestock feeds in Southeast Asia. After an unusually quite 2018, Malaysia’s equity capital market is set for rebound with at least three issuers looking to raise up to $500 million from IPOs. Leong Hup is set to the be the first as it has started the search for cornerstone investors.
Helped by the current imbalance between available Malaysian IPOs and the dry powder among investors, Leong Hup is seeking a premium rating. However, our analysis suggests the ability of Leong Hup to command a premium rating faces challenges.
4. Widodo, PDI-P Lead / Siregar to DC / Tobin Tax Unlikely / KPK Bomb Scare / Industry Minister Eyed
Widodo maintains his 20 point lead in a late December poll, while PDI-P looks poised to control over 40% of the next parliament — rendering the recalcitrant Party Chair Megawati an unconstructive power broker. Uno is pressing salient points about inflation and jobs, but Prabowo strikes discordant tunes. KPK members suffered bomb threats at their homes. The Riau-1 case increasingly implicates the industry minister, Golkar Chair Airlangga Hartarto. The new ambassador to the US is a competent economist.
Politics: Megawati delivered a high‑profile address to party members and dignitaries, including President Joko Widodo, that showed no inkling of embracing economic or governance reforms, despite their clear urgency. Widodo lavished praise on the chair of the party to which he belongs; the hyperbole merely underscored his awkwardness with the powerful and imperious party chair (Page 2). Vice Presidential Nominee Sandiaga Uno reiterated the importance of prices and jobs to voters, and downplayed the benefits derived by the poor from infrastructure works. He is honing his messaging, but he still lacks solutions and Prabowo Subianto strikes discordant tones (p. 3). The Solidarity Party (PSI) gained notice by issuing ‘Falsehood Awards’ to Prabowo, Uno and Partai Demokrat’s Andi Arief. But the inspired party is languishing with negligible popular support (p. 4).
Surveys: President Joko Widodo still had a 20 percentage point lead over Prabowo Subianto as of late December, according to the survey firm Indikator Politik. The poll also found that only 15 percent of respondents believe that Prabowo abducted pro‑democracy activists in 1997‑98, even though he himself has admitted to doing so (he denies having abducted those that never returned) (p. 5). The Survey Network (LSI) noted continued strong support for Megawati’s PDI‑Perjuangan, while parties such as the National Democrat (Nasdem) Party, the National Mandate Party (Pan) and Hanura could suffer exclusion from the next parliament. Islamic-oriented parties appear poised to lose a third of their seats – but it remains to be seen if Gerindra, which is expanding, embraces elements of an Islamic agenda. Dominance by PDI‑P in the next parliament would bode ill for economic and institutional reform (p. 7).
Justice: Although unharmed, two Anti-Corruption Commission (KPK) members were targets of attacks on their homes by unknown assailants. Two Molotov cocktails hit Laode Syarif’s home and a fake pipe bomb was found at KPK Chair Agus Rahardjo’s (p. 9).
Policy News: A former finance minister suggested a reverse Tobin tax on portfolio funds, but the current minister, Sri Mulyani Indrawati, pointed out its costliness (p. 10). The information minister promised a long‑awaited ride‑sharing regulation soon (p. 13).
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]>. |
Appointments: A prominent macro‑economic policymaker of the Yudhoyono‑era, Mahendra Siregar, received induction as ambassador to the US, after having served for two years as the government’s chief advocate for the palm oil industry (p. 13).
5. Are Chip Oligopolies Real?
In the semiconductor industry, particularly in the DRAM sector, there has been significant consolidation leading some to hypothesize that there’s now an oligopoly that will cause prices to normalize and thus end the business’ notorious revenue cycles. Here we will take a critical look at this argument to explain its fallacy.
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