Indonesia's economic recovery could be Jakarta bourse's next big theme: UOBKH
UOB Kay Hian (UOBKH) is bullish on the recovery prospects for Indonesia's economy, with projections for gross domestic product (GDP) to reach 3.5 per cent in 2021 and 5 per cent in 2022, from -2.1 per cent in 2020.
This comes as the country's Covid-19 infection rates recently fell below 2,000 cases per day with over 40 per cent of its population now vaccinated, noted the brokerage in a report on Tuesday (Jan 4).
It believes these factors will support higher GDP growth in 2022, which will in turn drive corporate earnings growth and ultimately boost the Jakarta Composite Index (JCI) to 7,400 by end-2022.
"Higher GDP growth translates to higher corporate earnings growth. At an 85 per cent correlation, higher corporate earnings growth will translate to an appreciation in the JCI," said UOBKH.
Its research team sees higher traffic for Indonesia's toll roads, malls and retailers this year, with purchasing and pricing power to improve. This is expected to lead to a "huge spike" in profit recovery for retailers, with retail giant Mitra Adiperkasa and F&B businesses to also benefit from increased traffic in malls.
The team is anticipating non-performing loans to decline further with higher loan growth, and believes construction and property projects will "be in full swing" sometime this year upon restarting.
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As such, UOBKH recommends that investors continue focusing on laggards and undervalued names that trade below the historical 5-year average of -1 standard deviation price-to-earnings.
These include the brokerage's top "buy" picks such as consumer goods producer Unilever Indonesia, telecommunications conglomerate Telkom Indonesia, and pharmaceutical company Kalbe Farma.
Noting that technology stocks had outperformed in the first 11 months of 2021 with more than 375 per cent returns, UOBKH also highlighted the outperformance of non-tech stocks since Q3 of 2021.
Said the brokerage: "The extent of the outperformance will depend on companies' fundamentals with the technology sector set to perform in line with or underperform the JCI."
"The potential risks to our bullish case are a higher-than-expected inflation rate and sooner-than-expected interest rate hikes," it added.
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