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Premier Fund Monitor - The Week Ahead : Global equities edging higher as bond yields fell further despite record high US inflation
Monday, June 14, 2021       09:36 WIB

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10-yr UST yield fell to 1.45% despite inflation jump to 5.0% in May
Most global markets edged higher, shrugging off inflation fears, as major stock indices in US and Europe hit all-time highs this week, with the high-growth tech sector benefitting the most. 10-yr UST yield fell to 1.45% (-10bps), its lowest level since March, despite US headline inflation jump to 5.0% YoY in May (April: 4.2%), its highest since after the 2018 global financial crisis, while core inflation of 3.8% is also the highest rate in 30 years. While high annual inflation reading partly came from low-base, MoM core inflation of 0.7% in May was also high and well above consensus expectation of 0.4%. US weekly jobless claims fell to 376K, a new pandemic-era low, although this was expected. Markets' positive reactions seem to suggest a consensus view that longer-term inflation remains under control and that Fed will maintain highly accomodative monetary policy for some time. Meanwhile, news of a bipartisan group in US Senate reaching a deal on an infrastructure plan that would not raise corporate taxes is positive for sentiment but it is unclear if Biden administration or Democrats in Congress would agree to such scaled-back spending plan.
In Indonesia, JCI gained 0.50% this week, still supported by inflows from foreign investors (Rp474.7Bn) while bond market maintained its large foreign inflows of Rp9.95Tn on the back of falling global yields. The JCI gain was largely driven by individual stocks, rather than sectoral movements, although the coal and metals mining stocks benefited the most while most property stocks corrected.
The Week Ahead - Fed Meeting and FOMC Projections, BI Rate Decision
The key economic calendar to watch out next week are EU Industrial Production (Mon 16:00), Indonesia Trade Balance (Tue 11:00), US Retail Sales (Tue 19:30), US Industrial Production (Tue 20:15), Fed Rate Decision and FOMC Economic Projections (Thu 01:00), BI Rate Decision (Thu 14:30), US Initial Jobless Claims (Thu 19:30), and Indonesia Auto Sales (Fri 17:00)
Investment Conclusion
Global equities have priced-in strong growth recovery in 2021 but the key issue for markets in recent months has shifted to inflation, as reflected in rising bond yields, which could lead to monetary policy tightening in advanced economies. We view rising commodity prices is a bullish case for Emerging Markets, as EM GDP, earnings growth and equity returns are historically positively correlated to commodity prices. However, any unexpected shift in Fed's monetary policy (eg. taper, rate hike) could unsettle markets and lead to fund outflows from EMs. We view such risks to Indonesia are lower now than in 2013 as a Fed tapering is already expected (unlike in 2013), country risk indicators have improved and its bond market is now more resilient. We reiterate our 2021 JCI target of 6,600
Recommendation
We have recommended investors to stay defensive since before the pandemic, with our broad-based ETFs RLQ45, (IDX30), (Pefindo i-Grade), and ESG ETF (Sri Kehati) to minimize volatility. Both and have overweight positions in , widely considered as defensive stock at times of uncertainty. Meanwhile, has managed to closely track JCI performances so far in 2021, well outperforming other broad-based ETFs due to its overweight of cyclicals, including in banking & basic materials sectors, and its underweight of defensive stocks in the portfolio. As such, is exposed to sectors that should benefit the most from economic recovery while still maintaining defensiveness through overweight exposure in . Meanwhile, Environmental, Social & Governance (ESG) ETFs globally saw record inflows in 2020 amid pandemic and we expect the trend of investing in ESG funds to continue. We also like ETF ( MSCI Indonesia Large Cap) for its constituent of mainly blue-chip stocks.
Meanwhile, (SM-Infra18) and (SOEs) focused on SOEs in infrastructure and financial sectors, lacked defensive constituents such as and consumer stocks, and thus may be viewed as riskier during the pandemic. However, these two ETFs also have lowest valuation among of our ETF universe, with 2021F P/E of 15.6x and 15.1x respectively, which are lower than valuation of our broadbased ETFs RLQ45 (at 17.3x), (at 17.1x), (at 16.4x) and (at 18.7x), and thus may have more upside potential if investors continue to rotate away from defensive sectors into cyclical stocks.

Sumber : IndoPremier Investment

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