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Company Update

21 Januari 2022

MNCS Economic & Market Outlook 2022

Navigating Volatility Surviving the Storm

 

Keep sailing on the boat and staying afloat

Through this report we explored how pandemic has caused notable changes in economy and markets and how it shaped trends globally. The global macro theme is still on how can we manage risk of Covid-19 outbreak, given the deadly virus keep on mutating while vaccine disparity has not been addressed yet. Rising inflation in both emerging countries and developed economies has forced global central banks to tighten their monetary policy. At the same time the surging level of indebtedness keep haunting the path towards sustainability. Chinese property sectors slowdown is a concrete example on how debt is now risking global economic prospect.

On the other side, Covid-19 pandemic also causing the shift in investment thesis globally. The new digital assets such as cryptocurrencies and NFT are becoming more popular and attracting both institutional and retail investors. Furthermore, a pandemic has taught us to think more on long term sustainable investment. Given this backdrop, global investors are becoming more aware on climate change risk therefore boosting fund flows to ESG investment.

Looking forward to 2022, some may see a goldilocks period for Indonesia. We agreed on that point of view with several notes. After taking into account macro policy and the development of commodity market, we see that Indonesia’s economy is likely to expand to pre-pandemic level. We expect inflation to remain benign and manageable. Meanwhile on the fiscal side, we think that budget deficit is possibly lower than government target next year given fiscal consolidation agenda.

We favor equity over bond for 2022 on the back of possibility that the Fed would raise interest rate earlier as soon as Mar-22 with more aggressive measures. Historically equities were less sensitive to monetary policy cycle than government bonds.

Moving to domestic government bond market, we see that yields dynamic was driven by rising global inflation and monetary policy normalization throughout 2021. The interest rates risk has trigger investors to shorten bond duration as it was already reflected on lowering premia of short term maturity bonds and increasing premia of longer maturity bonds. However with the probability of lower bond issuance than the target, we expect this can limit domestic currency government bond yield spike while keeping it to remain attractive.

Meanwhile in equity market we see some positive catalysts including rising domestic investors and tech-boom. Despite the positive outlook in equity market, risks remain on volatility and uncertainty. After taking into account those abovementioned factors, we recommend a diversified portfolio including value and growth stocks.

 

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