Last week, the International Monetary Fund (IMF) published its World Economic Outlook (edition April 2013) titled "Hopes, Realities and Risks". In the report, the IMF lowered its forecast for global economic growth from an initial 3.5 percent (January edition) to 3.3 percent currently. Although the IMF lowered its economic forecasts for most countries (including emerging markets as a whole), it revised up its projection for the ASEAN-5 countries¹ by 0.3 percent to 5.9 percent.
In the April edition, the IMF stated that Indonesia will benefit from China's recovery as commodity prices are expected to rise. In a previous column I outlined that currently no Indonesian company that is engaged in commodities (mining and agriculture) can be found in Indonesia's top ten of largest companies by market capitalization. Last year, commodity industries experienced a correction of about 30 percent, whereas previously commodity sectors were in fact the mainstay of the Indonesia stock index (IHSG). Therefore, I can conclude that the IMF estimates that the Indonesian commodity sectors have a promising future. Moreover, even without the help of the commodity sectors, the IHSG has continued to set new record highs.
Last Friday, the IHSG closed just below the psychological boundary of 5,000 points (4,998,46). It fell 14.18 points (0.28 percent) after reaching 5,023 at the first trading session on that day. Market participants decided to engage in profit taking and sold their big-cap stocks, such as Bank Rakyat Indonesia (BBRI) or Perusahaan Gas Negara (PGAS), as well as stocks in the property and consumption sectors. However, considering the full week, the IHSG managed to grow 1.2 percent amid corrections in a number of main indices around the globe. The Dow Jones Index and S&P Wall Street were corrected 2.14 percent and 2.11 percent respectively. Indonesia's index remained strong, however, as last week saw dividend payout announcements of a number of state-controlled companies with yields of over 3 percent.
This week, Indonesia's index is expected to show mixed results. It will most likely be positively affected by Q1-2013 results of various Indonesian companies as well as continued dividend payouts. However, increased global concerns about the world's slowing economic growth can cause investors to be cautious. It is expected that the IHSG will consolidate towards the beginning of May. In May, history shows us that the IHSG is likely to experience a correction.
¹ the ASEAN-5 countries consist of Indonesia, Malaysia, Philippines, Thailand and Vietnam
David Sutyanto is a research analyst at Jakarta-based First Asia Capital