Global Factors (Domestic Equity Market)

The domestic equity market experienced correction caused by the weakening exchange rate of the Rupiah, higher bond yields and global equity correction. The US Dollar has strengthened on the back of a resilient US economy that threatens the current expected declining inflation trend. Additionally, higher oil price gives another challenge for The Fed to reach demanded inflation at 2%. Investors think the monetary policy of “higher for longer” can change the terminal rate to be different than expected before which shifts the assumption on when the last rate hike and how long it lasts at a high rate. Additionally, higher yields were also driven by the supply of bonds that were still high hence investors demanded higher yields to compensate for the risk. Higher bond yield and terminal rates affect discount rates in equity valuation, including Indonesian equity. However, in general, we don’t see fundamental deterioration in the domestic market. Bank Indonesia has finally raised the 25 bps benchmark rate to 6.00% in order to stabilize the exchange rate. Inflation is well maintained low thus BI can only focus on the exchange rate stability that is crucial to the domestic economy. We see Indonesian government has started to provide more subsidies and incentives to the economy such as rice subsidies, cash distribution and tax waivers for property. Some of the companies have released their 3Q23 financial reports where only a handful of companies reported above expectation results. Having said that we still think domestic stocks can perform better in the last quarter of 2023 considering current equity market correction is more affected by global factors.