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Game of Flow

Indonesia big banks recently recorded a huge decline, ranging from 4% to almost 11% within just 5 trading days. This sell-off was mainly due to foreign capital outflow which also led USD IDR exchange rate to spike up, almost broke through IDR 16,000 per US Dollar.

As derived from RTI Business, the past week JCI has recorded foreign net sell of IDR4.96tn on all market, a sizeable amount considering the last 6 months JCI only recorded IDR20.09tn of capital inflow.

Until Wednesday March 27th, IDMA index which records government bond price, booked a YTD decline of 3.7%.

Foreign Flow

Source: Bank Indonesia, Sucor Sekuritas Research

There are several speculation on why foreign investors are exiting Indonesian market, some say because of the fiscal policy concern from the free lunch program, some say the domino effect from the full call acution system, but whatever it is, it is causing the Rupiah to be weaker which cause investors to fear Indonesia market even more.

USD IDR Exchange Rate

Source: Bloomberg

We believe the risk from the outflow is still big. As seen from big banks' share performance which kept on declining whilst the fundamental is actually shows no sign of "sell signal". That said, we do see that valuation is already a little stretched unless they book a robust earnings result that can justify a rerating.

We still have not see anything that can turn this concern around in the short run, these concerns are still likely to linger for a while as it hit not just the equity market but the bond market as well. We believe it will take some time and quite a breakthrough from the government to convince back foreign investor to allocate their investment in Indonesia from this strong outflow.

5 days Share Price Performance Comparison

Due to this outflow, we see that it is best to be very cautious on stocks which foreign ownership is heavy. We suggest to allocate some weight from the big banks to stocks which have better valuation such as BFIN or BRIS. These stocks may vary interms of performance and financial ratio, but what they have in common is a long opportunity option with less stretch valuation and more importantly, promising growth trajectory.

All things considered, there are still opportunity lies ahead from these big banks, we just see that it is better to wait for a better buying opportunity as this outflow kept on going. Should the sell-off continues and return its price to book ratio below 5 years mean, we do see that it's a good opportunity that does not come so often as we see the problem relies only on the game of flow and not from the fundamentals or financial performance.


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