Professional Documents
Culture Documents
February 2011
Michael Tjoajadi
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.
For professional advisers only. This material is not suitable for retail clients
Investment Themes for 2011
Schroders Profile
Themes For 2011
Sweet spot for risk assets
Search for yield
East/ west divergence
Sovereign debt restructuring in Eurozone
Why Indonesia
Disclosure
1
Themes for 2011
2
So goes the economy, so goes the market
Close link between S&P500 and labour market since 2007
Index 000’s
1600 250
1500 300
1400 350
1300
400
1200
450
1100
1000
500
900 550
800 600
700 650
600 700
07 08 09 10 11
3
Risk assets perform well in the recovery phase
“History does not repeat itself…but it does rhyme”
Phase/
Recovery Expansion Slowdown Recession
Asset
Excess
Equity 8.6 8.4 -8.4 7.4 Recession Recovery
return*
Output below Output below
trend, Growth trend, Growth
Government Excess decelerating, accelerating,
1.0 -1.0 0.0 2.1
Bonds return Inflation falling Inflation falling
Excess
High Yield 6.7 2.0 -11.9 11.7
return
Expansion Slow-down
Investment Excess Output above Output above
5.2 2.9 -1.9 7.3 trend, Growth trend, Growth
Grade return
accelerating, decelerating,
Inflation rising Inflation rising
Excess
Commodity 2.9 15.3 7.9 -4.4
return
4
Purchasing managers’ point to further recovery
After a mid year lull in 2010, industrial activity has picked up
Manufacturing Purchasing Managers Index
Index
68
66
64 Phase 1 Phase 2
62
60 UK
58 EZ
56 US
54
China
52
50
48 South
46 Japan Korea
44
42
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
6
Labour market set to improve in the US
Surge in profits signals lower US unemployment
y/y% %
50 -5
40 -4
Profits rising, unemployment falling
30 -3
20 -2
10 -1
0 0
-10 1
-20 2
Profits falling, unemployment rising
-30 3
-40 4
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12
Real US corporate profit growth, y/y% , 1-year lead
7
East/ west divergence
8
Forecast GDP growth – a two speed recovery
Emerging countries account for more than half global growth
y/y%
5
Asia crisis Last US Baseline forecasts
4 recession
3
2
1
0
-1
-2
-3
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
9
East/ west divergence
Inflation is also diverging in the developed and emerging worlds
y/y%
10
9
8
7
6
5
4
3
2
1
0
-1
-2
00 01 02 03 04 05 06 07 08 09 10 11
10
Global tensions - imbalances persist
Current account balances – 2010
USD, billions
400
300
200
100
-100
-200
-300
-400
-500
US Euro area Newly industrialised Japan Emerging markets
Asian economies
12
Government funding pressures persist
Total government debt refinancing in Euro periphery
€bn
80
72
68
70 64
60
60 53 54
50 50
50 46
42
38 39
40
29 28
30 25
20 19
20
10
10
0
J A S O N D J F M A M J J A S O N D
2010 2011
13
Will it all end in inflation ?
– Massive spare capacity in the global economy /
lack of credit growth
Versus..
– Helicopter Ben
14
Themes for 2011
Key points
15
Why Emerging Market Indonesia?
16
Indonesian Economics
Expectation 2011
Strong growth momentum: Indonesia stands tall among regional peers whose growth momentum is waning as
exports decelerate. Investment and consumption underpin Indonesia’s growth outlook;
Earnings momentum is robust for the market in 2011, with room for earnings upgrades by consensus as
expectations (for coal and plantation sectors)
18
INDO Inflation
14
12.14
12 11.03 11.06
10
8.17 7.92
8 6.96
5.80
6 5.05
3.65 3.43
4 2.83 2.78
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: BPS
19
INDO GDP Composition
20
INDO GDP Growth Vs GDP Per Capita
21
What Drives Investment: Stable Politics…
22
Leading Indicators Shows Strong Domestic Demands
23
24
Source: Economist Intelligence Unit
25
BB+ vs. BBB Rating
Nikkei -3.01%
Shenzen 4.98%
Malaysia 21.88%
IHSG 46.13%
Source: Bloomberg
As of 30 December 2010
29
JCI – Over reaction creates opportunity for the courageous
Source: Bloomberg
As of 9 February 2011
30
JCI – How high can it go?
Source: Bloomberg
31
Source: Bloomberg
32
FY 2011 Earnings Growth by Sector
33
JCI By Sector – Coal Mining
Key Drivers Key Risks
Multi-year earnings growth and re-rating potential;
Slowing demand in China, as the most
Higher thermal coal prices; influential importer may affect coal prices;
Favors producers with better exposure to export
markets and least constraint in production growth; Further delays in Indonesia’s power-plant
Supply: Constraint due to severe flooding in
completion may result in lower domestic
Australia; demand;
Cold weather conditions across Europe and USA Expected production growth is dependent on
underpin strong demand
the delivery of additional capacity and
infrastructure
Splendid earning in 2010 and strong EPS growth in 2011 Risk of inflation and potential interest rate hike;
supported by sturdy loan growth;
Risk of NPL
Focus on high earning growth banks and improving cost-
income ratio; Regulatory Risk (Higher reserve requirement)
35
JCI By Sector – Consumer
Key Drivers Key Risks
Select chief beneficiaries consumer stocks of higher Near-term inflation from basic food items;
disposable income;
Government’s phasing out fuel subsidies hurting
A young population, urbanization and democratization
disposable income;
remain potent drivers for the sector;
Prefer companies that have pricing power to pass on Soft commodity prices surge which if going for a long
increased costs term, force the profitability detriment of consumer
companies
36
JCI By Sector – Plantation
Key Drivers Key Risks
37
JCI By Sector – Property
Key Drivers Key Risks
Expectation of higher inflation and higher interest rate A key risk for the sector is project recognition;
may dampen sentiment towards the sectors;
Capital-raising is another risk for minority shareholder,
Earnings are major catalyst in property; equity markets are developers major source of funding;
38
Valuation and Growth
Source: Bloomberg
As of 9 February 2011
39
Valuation and Growth
Source: Bloomberg
As of 9 February 2011
40
Valuation and Growth
Source: Bloomberg
As of 9 Februari 2010
41
Valuation and Growth
Source: Bloomberg
As of 9 February 2011
42
Growth per Emiten on 2010
43 Source : Bloomberg
Growth per Emiten on 2010…contd
44 Source : Bloomberg
Growth per Emiten on 2010…contd
45 Source : Bloomberg
Growth per Emiten on 2010…contd
46 Source : Bloomberg
LQ 45 2010 (+32.73%)
47 Source : Bloomberg
LQ 45 for Q4 2010 (+1.45%)
48 Source : Bloomberg
49
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