Neutral on Indonesia, equity strategy-wise

INDONESIA'S equity market is flat in US dollar terms over the past 12 months, despite smooth elections and a sharp fall in fuel subsidies and inflation expectations. We are neutral on Indonesia from an equity strategy perspective, although the country's macro-economic conditions seem to have improved over the past nine months. We base our view on the following factors.

Macroeconomics improved but portfolio flows are key

Indonesia's macroeconomics have moved in the right direction over the past six months, so downside risk in terms of funding pressure has abated. Crude oil prices have declined by more than 50 per cent since September 2014, resulting in the removal of petrol and fixed diesel subsidies. As a result, consumer price inflation decelerated from a peak of 8.4 per cent year-on-year in December 2014 to 6.3 per cent in February 2015.