STAY INVESTED IN EQUITY

Transcription

1 STAY INVESTED IN EQUITY but be ready for higher volatility PORTFOLIO STRATEGY 2018 January 2018

2 Portfolio Strategy 2018: Summary Key Investment Points Steady domestic macro economy outlook Economic growth is expected to sustain above 5.2% in 2018 supported by higher consumer spending spurred by higher energy subsidy, a larger and faster cash disbursement and largest simultaneous provincial elections. Domestic growth is also driven by a more robust investment and government spending. On the flip side, Indonesia runs the risk of a higher inflation with higher oil price and stronger dollar but this may be contained with tighter price control and higher subsidy. Current account deficit (CAD) to stay lower than 2% of GDP with the assumption that major commodities price will stay within the current level. Global monetary normalization may pose as a serious threat in Higher Developed Market (DM) yield environment could trigger capital flight and provoke volatility in Emerging Market including domestic capital market. Consequently our assets selection will adjust and weigh more on liquidity scoring the next 12 months. We favour Equity over Bond in Rupiah volatility will be an influencing factor for bond investment. Although we are certain that macro domestic will hold up well next year, the potential upside from bonds is rather limited due to external factor aforementioned. Equities on the other hand have more upsides as earnings are projected higher and lower deposit (and risk free) rates may push riskier assets valuation higher as more fund allocated to equities, this is also in-line with higher DCF base valuation following lower risk-free rate. Corporate profit growth to continue yet at a slower pace. Our stocks universe forecast aggregate revenue to grow 9-10% (5% volume 4% pricing), whilst the bottom line to grow at similar pace (higher expenses should be partially offset by lower working capital loan rate). Valuation is not cheap, be selective. Some of big names have already rich valuation, mostly in consumer sectors, though we think consumer will gain its purchasing power back in 2018, recent stocks valuation provide no significant return but prone to underperforming broad index, thus we maintain underweight position. We maintain neutral position in major banks as we see valuations are reasonable given the sector s sound fundamental (low interest rate is yet to translate to higher loan growth, whilst asset quality recovery and sustainable NIM should support earnings growth). Selective coal and construction stocks are expected to outperform in 2018 due to strong earnings, and given the relatively cheap valuation we still maintain overweight position. Maintain holdings in quality big caps of whom valuations are more reasonable (ASII, TLKM, INDF, PGAS). Key Indicators E 2018E GDP Growth 5.0% 4.9% 5.0% 5.1% 5.3% GDP/capita (USD) 3, , , , ,015.0 Inflation 6.4% 6.4% 3.5% 3.6% 3.8% BI Benchmark Rate 7.75% 7.50% 4.75% 4.25% 4.25% USDIDR 12,388 13,788 13,473 13,550 13,500 Bond Yield 10y 7.80% 8.99% 7.97% 6.60% 6.50% CAD/GDP -3.10% -2.10% -1.80% -1.70% -2.00% Foreign Reserve (bn USD) Growth rate YoY % Q Q Q3 Household Expenditures 5.15% 4.96% 5.01% 4.94% 4.95% 4.93% NonProfit Insti. Expenditur 12.19% -0.62% 6.62% 8.05% 8.49% 6.01% Government Expenditures 1.16% 5.32% -0.15% 2.68% -1.93% 3.46% Investments 4.45% 5.01% 4.48% 4.78% 5.35% 7.11% Exports 1.07% -2.12% -1.74% 8.21% 3.36% 17.27% Imports 2.12% -6.41% -2.27% 5.21% 0.55% 15.09% Net Exports -1.05% 4.29% 0.53% 3.00% 2.81% 2.18% GDP Growth 5.00% 4.90% 5.00% 5.01% 5.01% 5.06% E 2018E China GDP Growth 7.3% 6.9% 6.7% 6.8% 6.5% US GDP Growth 2.4% 2.6% 1.6% 2.3% 2.6% COAL (USD/MT) CPO (MYR/MT) 2,291 2,398 3,218 2,650 2,750 GOLD (USD/T OZ.) 1,184 1,061 1,148 1,300 1,400 NICKEL (USD/MT) 15,074 8,780 9,964 12,000 12,500 WTI Crude Oil (USD/bbl) E 2018E IHSG - CLOSING PRICE 5,227 4,593 5,297 6,100 6,825 IHSG - P/E IHSG - EPS GROWTH% 5.41% -14.0% 11.4% 16.0% 12.5% Sources: Bloomberg Professional, BPS, PROSPERA Research Team

3 Portfolio Strategy 2018: Mind Map Market Strategy 2018 Macro View Domestic macro to finally benefit from structural reform? Global monetary tightening, if faster than expected? Sustained high level of Commodity Price? Less volatile Rupiah, sustainably low inflation, higher quality growth, domestic spending recovery, lower CAD, lesser political noise Capital Outflow? Provoke higher volatility on risky assets? Impact on inflation and CAD? Boost domestic income and spending? Portfolio Strategy Equity over Bond? More equity upside on sustained profit growth? Higher bond yield volatility on global monetary policy? Valuation is not cheap, stock selection is key? Maintain position in quality large cap with reasonable valuation: MAJOR BANKS TLKM ASII INDF? Seeking alpha: overweight coal mining and construction? Underweight consumer?

4 Portfolio Strategy: Equity to outperform Bond in 2018 Domestic Bonds Return Drivers: Rising domestic and global inflation outlook (partly of higher commodity prices and better growth outlook) Rising global benchmark rate (monetary policy normalization) Higher global bond yield (putting pressure on domestic bond yield) Strategy: Reduce exposure from longer duration bond to minimize impact from price depreciation Domestic Equities Return Drivers: Robust GDP growth outlook (support earnings growth) Higher utilization rate, higher profit margin Improving ROE and ROIC on margin recovery Valuation only stretched particularly on some big cap stocks, many are still attractively valued Strategy: Maintain position in large cap stocks with reasonable valuation (ASII, TLKM, INDF, PGAS), overweight selective construction companies (huge discount with promising growth), overweight coal (sustaining high coal price, solid global growth outlook), maintain position in big banks.

5 Equity Strategy 1H 2018 Investment Objective: Continuously Seeking Alpha Maintain portfolio liquidity and anticipate impact on passive flow Focus on quality large cap index mover with reasonable valuation and provide decent growth outlook Stocks selections: Big Banks, ASII, TLKM, INDF High Conviction Stocks Selections Focus on earnings delivery and mispriced stocks that has potential to re-rate, being contrarian if needed Stocks selections: ADRO, PTBA, PTPP, ADHI, WSBP Tactical Asset Allocation/ Active Investing Underweight expensive consumers stocks, actively invest in SMC stocks Stocks selections: underweight UNVR HMSP (~15% IHSG market cap), tactical investing (PGAS, POWR, INKP, SCMA, MIKA, TINS, ANTM, MEDC, SOCI) Asset Allocation: 40%-60% Investment duration: > 12 months Asset Allocation: 20%-30% Investment duration: 6-12 months Asset Allocation: 20%-30% Investment duration: 3-6 months *Investment strategy is reviewed monthly and quarterly, subsequently the asset allocation

6 DISCLAIMER In the preparation of the material contained in this presentation, PT. Prospera Asset Management (PAM) has used information that is publicly available, including information produced internally. The information shown and material used in this document is believed to be from reliable sources. PAM however does not warrant the accuracy, reasonableness and / or completeness of any information. The data/statistics are given to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. We may (have included) statements / opinions / recommendations in this document, which contain words, or phrases such as will, expect, should, believe and similar expressions or variations of such expressions that are forward looking statements. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in Indonesia and other countries globally. All figures and other data shown in this presentation (unless otherwise specified) are as on 8 January 2018 and the same may or may not be relevant in future. The data or figures mentioned in this presentation shall not be construed as indicative yields/returns of any of the PAM Mutual Fund. Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of PAM Mutual Fund. Past performance may or may not reflect the future performance.