Jakarta, CNBC Indonesia – PT Schroder Investment Management Indonesia predicts that in 2022 the domestic equity market will still have positive prospects. The domestic stock market is still considered to have a lower valuation than the stock market in the country peer.
In research released by Schroders Indonesia, it is stated that although the Composite Stock Price Index (CSPI) year to date (ytd) at the end of November rose 9.3%, but this stock index is still trading at a price to earnings (PE) of 18.15x. This figure is still lower than the PE of developed countries or India which is at 22.86x.
“In the last few months, the JCI’s performance has been quite good following the improvement in Covid conditions in Indonesia where the positive rate fell significantly to below 1% nationally. Therefore, we believe that the Covid recovery is almost fully reflected in the strong performance of the JCI on an annual basis,” wrote the statement. the research, quoted on Wednesday (12/22/2021).
Other driving factors are structural reforms of economic growth, the Omnibus Law, and sovereign wealth fund alias Indonesia Investment Authority (INA). In addition, foreign funds (capital inflow) is also expected to rush into the domestic stock market.
The research states that Indonesia will continue to be the beneficiary of the reallocation of assets from China. In addition, Indonesia also benefits from high commodity prices while its economy is dependent on domestic demand.
“Upcoming capital market activities and deals will also help propel Indonesia’s equity market with more attractive names for foreign investors such as emerging economies, sustainability and leading technology companies.”
From a sector perspective, this investment manager chose big banks as the main proxies for economic recovery. In addition, the health and consumer sectors will be used as a defensive sector.
Meanwhile, the technology sector is also an option but must be considered selectively in the long term considering the recent boom in the country.
The infrastructure sector is also interesting to note. Meanwhile, issuers in the commodity sector are also favored given the long-term development of EVs and green energy.
While the choice of shares, this company chooses blue chip stocks rather than mid-to-small cap which is on the rise a lot in 2021.
“Blue chip names benefit from the inflow of foreign funds into Indonesia because foreign investors tend to choose superior stocks,” this research writes.
In terms of index, between the JCI with the LQ45 and IDX80 indices, the JCI has outperformed LQ45 and IDX80 ytd with a large gap despite narrowing since the beginning of the year.
The underperforming LQ45 and IDX80 indicate that the market has been driven by small-medium cap stocks while blue chip stocks have lagged significantly.
“Because the gap between indexes is still large, with LQ45 at 9% and IDX80 at an 11% discount to the JCI, we believe that blue chip stocks will continue to appear to narrow the performance gap.”
(my / hps)
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