Recap of The Week
Another showdown of market pessimism
It was another challenging week for the Indonesian equity market. On Friday, March 21st, 2025, JCI continued to decline, with B BCA's share price down by -5.67% to IDR3.0 tn trading value (-IDR1.3tn foreign sell value). The Jakarta Composite Index was down by -1.94%, with IDR21. 7tn of trading value at the same day, a figure similar to the Covid era in 2021. However, the significant liquidity was due to investors underweighting the Indonesia market due to macro factors that everyone are talking in the social media (newspaper, youtube, podcasts).
When looking at the chart above, comparing MSCI Indonesia dividend yield VS real rate VS JCI, there is clearly a risk off by the investors both local and foreign. Higher dividend yield indicates that share price has fallen so significantly that few stocks, i.e, big cap stocks with consistend dividend ratio like BBCA, BMRI, BBNI, and BBRI, could generate susbtatantial return if we bought at this level. However, higher real rate mean that the condition for general business is not really good considering it is pricey to loan at this rate. Combining with "weak confidence from investors as it shown in the index" the business environment might be not a good environment to be aggresive at.
When comparing to the Covid era, when real interest rates were still below 6% and dividend yields were around 3-4%, investors were very aggressive in buying at those levels. We realize that interest rates are generally much higher now. With Indonesia experiencing deflation, a higher real rate, and higher dividend yield, it seems strange that foreign investors are underweighting Indonesia. They claim that Indonesia still has potential amidst the trade war, but the market doesn't lie. It may not be a macroeconomic issue; rather, the market might perceive that Indonesia is not prepared to take action in this global market showdown.
Another interesting fact is about Indonesia's weighting in the MSCI index. Over the past 10 years, the number of Indonesian constituents has dropped from 33 to 24, and the total market capitalization of the index has only risen around 10%. Indonesia's weighting in the MSCI All Country World index has decreased from 0.29% to 0.14%, and its weight in the broader MSCI index has fallen from 2.69% to 1.47%. This doesn’t seem to be a macro issue, as we are always taught that our fundamentals are strong and we have a robust demographic. However, we seem unable to compete in this new "industrial revolution."
Now, should we consider buying banks? People often hunt for significant discounts on major banks. In my personal view—shared on my blog, so please don't take it too seriously as I have only a few followers—buying major banks could seem like a good bargain, especially when we look at past events like the Covid-19 era. However, with the valuations of some large banks being quite high and their business models remaining similar over the past 10-15 years, should we rethink our approach this time? We know that foreign investment is not coming in just yet, so fund flow for banks might be limited, although a 5-10% rally is possible.
Instead of waiting for banks to attract foreign investors, let’s discuss the new industrial revolution driven by the tech war between China and the US. There’s a rise in Chinese electric vehicles, robotics, a low-altitude economy, and new investments in green energy that will drive demand for copper and other metals. Headlines are filled with countries competing for rare earth minerals, nickel, copper, etc. On the other hand, stagflation in the US due to the tariff war might boost metals. Therefore, with limited downside in Indonesia, while buying banks could hedge your position, it might be more beneficial to consider investing in metal-related stocks to generate alpha this time around.
This is purely my personal view, so please use your discretion. Any suggestion or input please DM me dont spam my work for your own personal interest / agenda.
