Slow Start for January Effect
JCI Performance as of January 2020: Weakening by 0.97% YTD in line with declining Capital Inflow
JCI Index slipped 0.97% YTD to 6,238 level on 21 January 2020, which is inversely proportional to the JCI growth of 4.14% YTD on 21 January 2019. Net foreign inflow continued to decline at IDR2.27 trillion in 21 January 2020 (-75.50% YoY) as well as the decrease in average daily trading value at the level of IDR6.35 trillion (-29.18% YoY). The net inflow mentioned is much lower compare to 21 January 2019 which recorded net foreign inflow worth IDR9.26 trillion (+183.29% YoY) with average daily trading value at IDR8.96 trillion (+10.35% YoY). We note that the declining net inflow was due to several factors, such as: 1) Concerns over the uncertainty towards global economy due to US-China Trade War, despite the phase 1 trading agreement being rectified; 2) The Snowballing Effect from the systemic errors in investment management and fraud by several local mutual funds which caused the instability in capital market and led the investors distrust.
Will January Effect still occur this year?
Historically, JCI recorded a positive return throughout January, with 5-years average growth of 2.21%. MNCS believes that the JCI upward momentum in January 2020 will potentially continue to happen this year supported by: 1) Controlled inflation rate at 2.72% YoY in FY19, in line with 2019 APBN Projection at 3.5%±1; 2) IDR strengthening to continue to 3.93% YoY at the level of IDR13,669/USD; 3) Indonesia foreign exchange reserves are increased at the level of USD129.18 billion in Dec-19 equivalent to 7.6 months of imports financing, above the international adequacy standard; 4) Rising commodity prices such as CPO (+29.69% YoY), Nickel (+15.81% YoY), Gold (+21.69% YoY) and Oil (+8.44% YoY); 5) Omnibus Law policy which will gradually reduce corporate tax rate from 25% to 22% in FY21-22F and 20% in FY23F has the potential to increase companies Earnings in FY21F. MNCS projects EPS IHSG to grow around 10%-12% in FY21F (vs 5% in FY19E and 5.38%-8.00% in FY20F).
Investment Theme of MNCS 1H20E: Focus on Blue Chip and Dividend Player
MNCS believes that the JCI movement in 1H20E will still be affected by both global and domestic sentiments include: 1) Trade disputes between US and China, Iran, Eurozone, Mexico, Canada, and other countries which caused the slowdown in global economy; 2) Potential big rebalancing on MSCI and FTSE Index in 1H20E; 3) The global economic slowdown predicted by World Bank from 3% in FY18 to 2.4% in FY19E and 2.5% in FY20F followed by the anticipation of China economic slowdown below the level of 6%; 4) Widening CAD. Therefore, MNCS estimates JCI to grow moderately in 1H20E at the level of 6,371 (Moderate Scenario; PE20E: 15.09x; probability level 45%) with Pessimistic Scenario at the level of 5,601 (PE20E: 13.61x; probability level 55%). MNCS implements a defensive strategy in the midst of high stock market volatility in 1H20E by focusing on the Consumer Sector (Overweight), Telco Sector (Neutral) and Banking Sector (Neutral), particularly on high-yield dividend stock and Dividend Payout Ratio such as HMSP (BUY; TP: IDR2,750), GGRM (BUY; TP: IDR63,000), UNVR (BUY; TP: IDR9,400), TLKM (BUY; TP: IDR4,700), BMRI (BUY; TP: IDR8,500) and BBRI (HOLD; TP: IDR4,900). Meanwhile, there is potential for short-term strengthening in the Coal and Metal Mining Sector (Neutral) with the top picks are ADRO (HOLD; TP: IDR1,535), MDKA (BUY; TP: IDR1,400) and CPO Sector (Neutral) with LSIP (BUY; TP: IDR1,400) amid global geopolitical risks and rising in commodity prices.
