Indonesia Equity Strategist Puts Expiration Date on Bullish Call
2018-12-05 21:00:00.4 GMT

By Harry Suhartono and Abhishek Vishnoi
(Bloomberg) -- Indonesian stocks are on a winning streak
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that may last only until May because of two major risks.
That’s according to John Rachmat, a strategist at PT
Pinnacle Persada Investama who correctly predicted both of the
nation’s previous crashes. He says the Jakarta Composite Index
may rally another 9.2 percent from Wednesday’s close to 6,700
before May, adding to its 2.6 percent advance this quarter.
Gains past that point are less certain, as the nation may face
an abrupt end to government social spending after elections in
April and the risk of a sharp increase in regulated domestic
fuel prices.

“Our bullish stance actually has an expiration date, and
I’m bullish until about May next year,” Rachmat said in a
Bloomberg TV interview Wednesday. “I expect the government to
curtail its social spending once the presidential election is
over. So second-quarter GDP growth might disappoint some bulls.”
Indonesian stocks, along with those in the Philippines,

have had an impressive run as the only major equity markets in
Asia gaining this quarter. Rachmat turned bullish on Southeast
Asia’s biggest economy after crude-oil prices plunged and U.S.
midterm elections results spurred expectations that President
Donald Trump would curtail budget spending and his trade-war
rhetoric. Foreign funds bought $609 million of Indonesian
equities in November, the best monthly inflow since April 2017.
Sean Gardiner, a strategist at Morgan Stanley, is more
optimistic about Indonesia’s prospects in the longer term. He
says private sector spending after the national election next
year -- where President Joko Widodo is seeking re-election --
will likely fill the gap left by the cut in government spending
and boost corporate-earnings growth.

Data released last month showed that Indonesia’s economic
expansion held above 5 percent for a seventh straight quarter,
shaking off the impact of a rout in the currency and a series of
interest-rate hikes by the central bank.

“The political concerns that the market had in 2017 have
faded this year, which is constructive for the outlook for
equities,” Gardiner said in an interview. “Post elections, what
we should see is the return of private-sector capital
expenditure, which has essentially been a bit on hold for the
last two years, so that is your next leg of earnings growth.”
Similar to Rachmat, Bharat Joshi, a fund manager at
Aberdeen Standard Investments, recommends that investors ride
Indonesia’s rally before it ends. He points out that signs of a
thaw in U.S.-China trade tensions will do little to improve the
outlook for the global economy.

“The recent gain from the truce between U.S. and China is
more like a knee-jerk reaction, and I don’t expect that to help
the overall global fundamentals going forward,” Joshi said. “I
would prepare myself to cash in in six months.”
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