full report - Profindo International Securities



full report - Profindo International Securities
U.S. GDP + 5.0%
Bayu Cahyadi
[email protected]
2015 Target
5750 (11.9% upside)
Overweight Sector
Toll Road
U.S. Economy 3Q14 Expand 5%
Last night, the United States of America announced that its 3Q14 GDP grew by 5.0%,
above previous estimate of 3.9% as well as economists’ estimate of 4.3%. The
growth rate is supported by strong household spending (+3.2%), in line with strong
labor market and declining oil price. The GDP number, the fastest number in 11
years, sent the Dow Jones Industrial Average (DJIA) index to above 18k. The news is
favorable for the U.S., but may be not for emerging economies such as Indonesia.
When an economy is speeding, the government as well as the central bank may put
an effort to slow it down to prevent bubble in the economy. There are at least two
risks to consider: money outflow from the emerging economies and faster Fed Rate
Flash Back on Financial Crisis
A little flash back, in 2008, U.S. economy experienced financial crisis due to subprime
mortgage, sent the DJIA from its highest level at that time at 14,198 on October 7,
2007 to the very low level at 6,469 on March 2 , 2009. Even, one of the largest
investment banks in the U.S., Lehman Brothers, declared bankruptcy in 2008
following the massive exodus of most of its clients, drastic losses in its stocks and
devaluation of its assets by credit rating agency.
In order to stimulate the economy, the US central bank decided to set the Fed Fund
Rate at the lowest level of 0.0 to 0.25% on December 16, 2008. In addition, The Fed
introduced Quantitative Easing (QE), buying financial assets such as government bond
to directly increase private sector spending in the economy.
24 December 2014
The US Economy Recovers
The QE program looks promising, sending the US GDP from USD 14.4 tn in 2010 to
USD 16.8 tn in 2014. After reaching The Fed’s target: steady economic growth, 6.5%
unemployment rate and 2% inflation rate; The Fed decided to stop the QE program in
October 2014. Then, The Fed plans to start increasing the Fed Rate in 2015. At the
FOMC meeting in December 2014, The Fed stated that they will not increase the
interest rate before 2Q15, which creates a bullish sentiment in the market.
Importantly, we have to face the truth that increasing Fed Rate will put pressure in
our economy.
Market Update
US Offers Better Reward/Risk Ratio
According to Damodaran, the equity risk premium in the U.S. was 5.0%, 4% lower
than in Indonesia. However, the economy growth for both countries is similar –
around 5%, which stated the fact that investing in Indonesia is riskier but less
rewarding. Being conservative, investors would put their money in the U.S. rather
than in Indonesia because the developed country offers better reward/risk ratio. This
fact would stimulate money outflow from emerging markets to the U.S.
Foreign Net Sell in December
Although since the beginning of 2014 to Nov 14 foreign investors posted a huge net
buy of Rp 48.86 tn in Indonesia, they started to do the selling, posted a net sell of Rp
7.64 tn from Dec 1 to Dec 23. We believe that investors are anticipating the better
GDP growth rate in the U.S. After the real number came out, we expect more selling
from the foreign.
Big Portion in Banks and Telco
From the beginning of 2014, foreign investors bought a bunch of banking shares
namely PT Bank Mandiri Tbk (BMRI) and PT Bank BRI Tbk (BBRI) as well as telco: PT
Telekomunikasi Indonesia Tbk (TLKM) and PT Tower Bersama Tbk (TBIG).
Our Recommendation
Looking at a big number in bank and telco shares, we are assuming the share price
will decline in the short term as the foreign investors need some cash to put in the
U.S. market. This may become an opportunity for investors to buy all the shares
mentioned in this report at a bargaining price as we remain bullish on those stocks in
2015. In our market outlook 2015 report, we estimate that JCI may reach 5750 FY15.
Stocks Mentioned
Market Cap (IDR)
247 tn
284 tn
286 tn
46 tn
Target Price
2015 Profindo Rating
Key Chart
Indonesia GDP
U.S Unemployment Rate
U.S. Fed Fund Rates
Source: Tradingeconomics
Page |2
Market Update
Gedung Permata Kuningan, Lt. 19
Jl. Kuningan Mulia, Kav. 9C, Guntur
Jakarta Selatan 12980
Phone : +62 21 8378 0888
: +62 21 8378 0889
Jl. Sunda No. 50B
Bandung, Jawa Barat
Phone : +62 22 420 2678
: +62 22 420 2676
[email protected]
[email protected]
This research report is prepared by PT PROFINDO INTERNATIONAL SECURITIES for information purposes only and is
not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or
other financial instruments. The report has been prepared without regard to individual financial circumstance,
need or objective of person to receive it. The securities discussed in this report may not be suitable for all
investors. The appropriateness of any particular investment or strategy whether opined on or referred to in this
report or otherwise will depend on an investor’s individual circumstance and objective and should be
independently evaluated and confirmed by such investor, and, if appropriate, with his professional advisers
independently before adoption or implementation (either as is or varied).
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