Investment Outlook 2011 [Compatibility Mode]

8/7/2019 Investment Outlook 2011 [Compatibility Mode]

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February 2011Michael Tjoajadi

Investment Themes for 2011

For professional advisers only. This material is not suitable for retail clients

The world economy is recovering from the financial crisis, with the emerging markets leading the way. As the US

embarks on another round of Quantitative easing we look at the challenges facing investors who must walk a tightrope between the risks of deflation and new financial bubbles.


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Investment Themes for 2011

Schroders ProfileThemes For 2011

Sweet spot for risk assets

Search for yieldEast/ west divergenceSovereign debt restructuring in Eurozone

Why Indonesia

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Themes for 2011

2


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1300140015001600 250

300350400

Close link between S&P500 and labour market since 2007

So goes the economy, so goes the market

Index000s

3

600700800900

100011001200

07 08 09 10 11

450500550600650700

US S&P 500 index US initial jobless claims (inverted), rhs

Source: Thomson Datastream, 4 January 2011.


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100

101

102

US GDP and jobs

Significant gap between output and employment

Index (Base 100 = 15/02/2008)

6

94

95

96

97

98

08 09 10 11

US total civilian employment US real GDP level

Source: Thomson Datastream, 4 January 2011.


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East/ west divergence

8


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2

3

4

5

Forecast GDP growth a two speed recovery

Emerging countries account for more than half global growth

y/y%

Last USrecession

Asia crisis Baseline forecasts

9

-3

-2

-1

0

1

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Growth contribution from the OECD countries Growth contribution from emerging markets

Global growth

Source: IMF, Consensus Economics, Schroders, December 2010Please refer to the forecast risk warning in the important information


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6789

10

Inflation is also diverging in the developed and emerging worlds

East/ west divergence

y/y%

10

-2-1012345

00 01 02 03 04 05 06 07 08 09 10 11

G7 CPI rate BRICs CPI rate

Source: Thomson Datastream, Schroders, 4 January 2011.BRICs: Brazil, Russia, India and China. USD GDP-weighted.


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100

200

300400

USD, billions

Global tensions - imbalances persist

Current account balances 2010

11

-500

-400

-300

-200

-100

0

US Euro area Newly industrialisedAsian economies

Japan Emerging markets

Source: World Economic Outlook Database (October 2010), IMFNewly industrialized Asian economies are composed of 4 countries: Hong Kong SAR, Korea,Singapore, and Taiwan Province of China


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The Euro in crisis

Sovereign debt restructuring in Eurozone

12


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Government funding pressures persistTotal government debt refinancing in Euro periphery

68

4650

53

42

60

64

38

50

72

54

3940

50

60

70

80

bn

13

Source: Bloomberg, Schroders. 01/11/2010 : Redemptions and coupon payments

29 2820

25

19

10

0

10

20

30

J A S O N D J F M A M J J A S O N D

2010 2011

Spain Portugal Italy Ireland Greece


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Will it all end in inflation ?

Massive spare capacity in the global economy / lack of credit growth

Versus..

Helicopter Ben

14


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Sweet spot and search for yield

Moving into phase of recovery where corporate sector drives growth through increased employment and capital expenditure.

US/ Europe/ Japan inflation and rates stay low, but emerging market inflation rates hike.

East/ West divergence

Emerging markets to continue to generate more than half global growth Loose policy in West creates risk of inflation and asset bubbles in emerging markets

Emerging market currencies expected to appreciate vs. developed

Sovereign debt restructuring in Eurozone

Themes for 2011Key points

15

es ruc ur ng o ecome more a rac ve as appe e or sca conso a on wanes

Renewed pressure on Euro, core / periphery divergence

Inflation/ deflation?

Near term deflation pressures .

Asset allocation

Equity valuations plus sustained recovery supports overweight in risk assets

Adding to equity and commodity exposure, reducing high yield and credit

Light on government bonds and cash

Short EUR/ long USD. Long Asian EM currency

Please refer to the forecast risk warning in the important information


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Why Emerging Market Indonesia?

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Indonesian EconomicsExpectation 2011

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Source: Bloomberg, Economic Consensus, BI & MOF as of Dec 30,2010


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Stable politics and robust macros: low debt and a conservative budget are comforting in an uncertain world. Keymilestone is Indonesias possible rating upgrade to investment grade;

Strong growth momentum: Indonesia stands tall among regional peers whose growth momentum is waning asexports decelerate. Investment and consumption underpin Indonesias growth outlook;

Earnings momentum is robust for the market in 2011, with room for earnings upgrades by consensus asexpectations (for coal and plantation sectors)

Why INDONESIA?

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5.055.80

6.96

8.17

11.03

12.14

11.06

7.92

6

8

10

12

14

INDO Inflation

19

2.83 2.783.433.65

0

2

4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008 2009 2010

Source: BPS


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INDO GDP Composition

20

Source: CEIC and Bloomberg


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INDO GDP Growth Vs GDP Per Capita

21

Source: Central Bureau of Statistics


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What Drives Investment: Stable Politics

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Leading Indicators Shows Strong Domestic Demands

23



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25

Source: Economist Intelligence Unit


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BB+ vs. BBB Rating

26

(Source: Fitch Ratings Oct 2010)


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BB+ vs. BBB Rating

27(Source: Fitch Ratings Oct 2010)


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Kepemilikan SUN yang Dapat Diperdagangkan

Per 7 Februari 2011

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Sumber: Dept. Keuangan RI


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Equity Market

16.74%

11.10%

10.87%

8.80%

5.15%

4.98%

-15.80%

-3.01%

BSE Sensex India

Dow Jones

Strait Times Singapore

Taiw an Exc

Hang Seng

Shenzen

Nikkei

Shanghai

29

Source: BloombergAs of 30 December 2010

46.13%

40.60%

37.62%

21.88%

21.88%17.16%

-20% -10% 0% 10% 20% 30% 40% 50%

IHSG

SET Bangkok

PSEi Manila

Kospi Seoul

MalaysiaDax Jerman


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JCI Over reaction creates opportunity for the courageous

30

Source: BloombergAs of 9 February 2011


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JCI How high can it go?

31

Source: Bloomberg


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32Source: Bloomberg


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FY 2011 Earnings Growth by Sector

33

Source: Company and Bloomberg


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Key DriversMulti-year earnings growth and re-rating potential;

Higher thermal coal prices;

Favors producers with better exposure to exportmarkets and least constraint in production growth;

Supply: Constraint due to severe flooding inAustralia;

JCI By Sector Coal Mining

Key Risks

Slowing demand in China, as the mostinfluential importer may affect coal prices;

Further delays in Indonesias power-plantcompletion may result in lower domesticdemand;

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underpin strong demand xpec e pro uc on grow s epen en on

the delivery of additional capacity andinfrastructure

Source: Company , CEIC and Bloomberg


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Key Drivers

Splendid earning in 2010 and strong EPS growth in 2011supported by sturdy loan growth;

Focus on high earning growth banks and improving cost-

income ratio;Waves of right issue.

JCI By Sector BanksKey Risks

Risk of inflation and potential interest rate hike;

Risk of NPL

Regulatory Risk (Higher reserve requirement)

35



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Key Drivers

Select chief beneficiaries consumer stocks of higherdisposable income;

A young population, urbanization and democratizationremain potent drivers for the sector;

Prefer companies that have pricing power to pass onincreased costs

JCI By Sector ConsumerKey Risks

Near-term inflation from basic food items;

Governments phasing out fuel subsidies hurtingdisposable income;

Soft commodity prices surge which if going for a longterm, force the profitability detriment of consumercompanies

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Key Drivers

JCI By Sector PlantationKey Risks

Strong CPO prices due to drought in South

America and strength in other soft commodity prices;

Oil-palm planters are set to book higher earnings in

2011, helped by higher FFB output and CPO prices;

Expectation CPO prices (CIF) to rise 27% to

average US$870/tonne in 2010. For 2011, we forecast

Should there be a sharp contractions in global liquidity or

US$ strength, CPO or other related commodity prices

could correct steeply;Chinas price-control guidelines may lead to lower edible

oil prices;

Potential excessive IDR would send negative tone for

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an average price of US$950/tonne INDO CPO producer as it leads to higher local costs;


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Key Drivers

Expectation of higher inflation and higher interest ratemay dampen sentiment towards the sectors;

Earnings are major catalyst in property;

Backed by a strong performance in 2010, 2011 isexpected to be backed up by earning acceleration andstrong presales

JCI By Sector PropertyKey Risks

A key risk for the sector is project recognition;

Capital-raising is another risk for minority shareholder,equity markets are developers major source of funding;

Regulatory Risk

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Valuation and Growth

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l d h


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41

Source: BloombergAs of 9 Februari 2010

V l i d G h


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Growth per Emiten on 2010


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Growth per Emiten on 2010

43 Source : Bloomberg


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Growth per Emiten on 2010contd



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LQ 45 2010 (+32.73%)


LQ 45 f Q4 2010 ( 1 45%)


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LQ 45 for Q4 2010 (+1.45%)



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R l t di l i


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Reliance should not be placed on the views and information in the document when making individual investment and/or

strategic decisions. Schroders has expressed its own views and opinions in this document and these may change.Although the information and opinions contained in this document have been obtained from sources we consider to bereliable, no responsibility can be accepted for errors of fact or opinion. The information herein is also affected bymarket conditions and may not reflect at all times the exposure of the relevant fund to the named counterparties.Exposures may rise as well as fall and we have no obligation to update you on any changes."

PT Schroder Investment Management Indonesia

Indonesia Stock Exchange BuildingTower 2, 31 st floorJl. Jend. Sudirman Kav 52-53Jakarta 12190, IndonesiaTelephone: 021 515 5015 Fax: 021 515 5018www.schroders.co.id

Investment Outlook 2011 [Compatibility Mode]

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