ASEAN KEY DESTINATIONS
Asean Stock Watch- September 6
US exchanges were closed for the Labor Day holiday.
Investors on Monday returned to the Jakarta stock market after a week-long holiday in a buying mood after a report on inflation suggested the central bank would hold off in raising its key interest rate.
The Jakarta Composite Index rose 24.44 points, or 0.6 percent, to close at 3,866.17 on Monday, the first day of trading in September.
The market was closed last week for the Idul Fitri celebration. The benchmark gained as much as 1.8 percent in early trading but was dragged down by global market pressure later in the day.
Trading at the Indonesia Stock Exchange was moderate, with 4.13 billion shares valued at Rp 6.09 trillion changing hands. Decliners outnumbered gainers, 121 to 97.
“There was a lot of positive news last week, and it is only affecting Indonesia’s market now, because it was closed for a week,” said Janson Nasrial, market analyst at AmCapital in Jakarta.
Indonesia’s Central Statistics Agency reported that the consumer price index in August rose 4.79 percent from a year earlier, an increase on July’s 4.61 percent gain.
Still, the figure is within the central bank’s desired inflation rate — 4 percent to 6 percent this year — and that may prompt Bank Indonesia to keep its key rate at 6.75 percent at its policy-setting meeting on Thursday.
“The inflation figure was not bad. It’s pretty much in line with expectations,” Janson added. “With the inflation data, the central bank is likely to hold its rate and it will be good for banking stocks.”
Steady borrowing costs would encourage consumers to take out loans, boosting banks’ profitability.
Bank Rakyat Indonesia, Indonesia’s second largest bank by assets, gained 1.5 percent to Rp 6,650 on Monday. Bank Central Asia, the largest capitalized banking stock on the exchange, added 1.9 percent to Rp 8,150.
Telecommunications stocks rallied after companies reported a rise in traffic of voice calls, text messaging and data during Idul Fitri.
Telekomunikasi Indonesia, the largest phone company, climbed 4.1 percent to Rp 7,550. Among its closest competitors, Indosat advanced 4.8 percent to Rp 5,500, and XL Axiata surged 6.9 percent to Rp 5,400.
Cigarette makers Gudang Garam rose 1.1 percent to Rp 55,600 and HM Sampoerna gained 1.6 percent to Rp 31,500 after the World Trade Organization on Friday ruled out a US ban on flavored cigarette imports in the United States, paving the way for the companies to resume shipments of kretek clove cigarettes there.
Astra International, the nation’s largest automotive distributor, gained 2.5 percent to Rp 67,800.
Monday’s trading occurred in unusual circumstances, Janson said, as investors returned after a long break to accumulate shares they viewed as cheap and shrugged off declines in markets across the region.
Volatility in the market is expected amid concern of the pace of economic growth in the United States and Europe.
“The index is pretty vulnerable as there is no measure of certainty in European and US economies,” Janson said. Regional markets have been declining since Friday as US data showed that no new jobs were created in August, heightening fears of slowing economic growth in the United States, a major destination of Indonesian exports.
“The JCI in September will, more or less, be similar to trading activity in August,” Janson said.
Before Monday’s trading, the index had lost 8.4 percent after closing at record high on Aug. 1.
“I would suggest investors invest in stocks like banking, consumer goods and pharmacy, which have a strong domestic-market orientation,” Janson added.
He said that commodity-based stocks are now exposed to vulnerability as global demand for commodities is expected to be sedate along with the slowing global economy.
The rupiah fell 0.1 percent, to 8,532, against the dollar.
Brokers have continued to downgrade their year-end target for the FBM KLCI on the back of poor second quarter earnings results and the global economy’s deteriorating outlook.
The key barometer ended yesterday at 1463, down 11 points.
CIMB Research lowered its end-2011 KLCI target from 1,700 points to 1,580 points due to the disappointing second-quarter results. It has also cut the 3-year moving average price earnings (PE) target from 14.5 times to 14.1 times.
“We also introduce our end-2012 KLCI target of 1,660 points, based on a PE target of 13.4 times, a 5 percent discount to the 3-year moving average PE to factor in heightened risks of a double-dip recession in the United States and the dent that the wild market swings of late are inflicting on market sentiment,” said CIMB Research head Terence Wong.
OSK Research head Chris Eng said that while he had yet to see indications confirming a recession, the earnings downgrades in the second quarter had led to to a cut in his earnings growth forecast by between 1 percent and 3 percent to 14.6 percent for 2011 and 11.4 percent for 2012.
He said the recent reporting season was the worst quarter since the first quarter of 2009, both in terms of matching expectations as well as the number of upgrades versus downgrades. This has led to his KLCI year-end target being trimmed from 1,557 points to 1,533 points, although he maintains the 2012 KLCI fair value of 1,466 points.
Eng, who expects to see risks in the third quarter 2011 earnings season given the global gloom and the potential of companies reporting provisions in times of market uncertainties, remains generally defensive in stock selections.
Meanwhile, another research house also joined the bandwagon and cut its year-end estimates for the key barometer.
Affin Research head Andy Ong lowered his 2011 KLCI target to 1,530, based on a reduced 14 times 2012 earnings from 1630 points. The house also has a 2012 KLCI target of 1,700, premised on 15x PE (2013 earnings) and based on the assumption that the US economy would not fall into a double-dip recession and that the eurozone’s sovereign debt crisis would recede in the months ahead.
Ong remains hopeful of further stimulus measures in the United States, which he thinks will be a possible point of inflection to the prevailing negative market trend.
“Fed Chairman Ben Bernanke’s speech at Jackson hole on August 27 has paved the way for a third round of quantitative easing, which will most likely be unveiled after the next FOMC meeting in September. The fact that the Fed chairman has added another day to the scheduled Sept 20 meeting indicates a plan to forge a consensus for more actions,” said Ang.
On a more positive note, Wong continues to be “overweight” on Malaysia as he expects the general election to be held later rather than sooner.
“The widely speculated election timing is now the second quarter (of 2012). A delay in the election date should be positive for the market,” said Wong.
Philippine share prices on Monday slipped after a dismal US employment report fuelled recession concerns.
At the Philippine Stock Exchange, the composite index fell 10.35 points, or 0.24 percent to 4,382.56, while the broader all-shares index added 13.82 points, or 0.45 percent to 3,071.93.
A total of 8.57 billion shares worth P3.54 billion changed hands. Decliners beat advancers, 89 to 66, while 34 stocks were unchanged.
“The PSEi slipped by 0.24 percent after world markets plunged on disappointing US jobs report last Friday,” said Maria Arlysa Narciso of AB Capital Securities Inc.
“August non-farm payrolls were unchanged renewing concerns if the US economy had come to a standstill,” she said.
On Friday, Wall Street plummeted after no jobs were added in the US last month, its worst employment data in 11 months.
Exporters dragged Asian stocks to close at a two-week low.
“Major Asian indexes spiraled down as the weakness in US labor and eventually consumption threaten to cripple the emerging economies’ exports,” Narciso said.
At the local bourse, only the mining and oil counters led by Lepanto Consolidated Mining Co. and Philex Mining Corp. managed to buck the weakness, rising by 2.62 percent, as investors flocked to safe havens such as gold.
Local equities may be in for a choppy session on Tuesday in the absence of leads from the US market, which will be closed for the Labor holiday.
“With the lack of direction, blue chips may take the backseat while third-liners will again be highly traded along with some mining issues,” Narciso said.
The PSEi is nearing its resistance at 4,400 and the benchmark index is seen to move at a tight range until global and local outlook become more stable, Narciso said.
The dismal US jobs data also pulled down the peso along with other Asian currencies.
At the Philippine Dealing System, the local unit shed 4.5 centavos to close at 42.185 against the US dollar from on Friday’s 42.140 finish.
Analysts said the halt in hiring by US companies last month was enough reason to temper investors’ appetite, which resulted in heightened risk aversion across the region.
The dollar-peso pair opened at 42.250 and moved to a high of 42.26 and to a low of 42.180.
Total trading volume reached $823.5 million from last week’s $669.7 million.
“Expect investors to be on the sell side given the dismal US jobs report released late last week. This only adds to the stream of gloomy economic reports worldwide that point out to a global slowdown, including the Philippines,” an analyst said.
The dollar-peso currency pair is expected to trade at 42 to 42.70 range within the week.
Singapore shares opened lower on Tuesday, with the benchmark Straits Times Index at 2,739.37 in early trade, down 1.22 percent, or 33.80 points.
Around 74.4 million shares exchanged hands.
Losers beat gainers 152 to 13.
Thai composite stocks index (SET) opened on Tuesday at 1,048.32, down 0.91 point, or 0.09 percent in line with regional bourses amid concerns over European debt and U.S. recession prospect.
Blue chip SET-50 index was at 728.71, down 0.98 point, or 0.13 percent.
Top five active (value) stocks: ADVANC, BANPU, PTT (XD), TRUE, JAS.
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