However, there remain significant challenges in 2016. One challenge, which also caused severe volatility on global financial markets in 2015, is US monetary policy. In December 2015 the US Federal Reserve finally decided to raise its key Fed Fund Rate by 0.25 percent as the economic recovery of the USA persists. In 2016 we expect to see more US rate hikes. However, these hikes are expected to be gradual and gentle in order to avoid shocks.

The second challenge that remains in 2016 is the economic slowdown of China. The world's second-largest economy is currently shifting its economic structure from being driven by export and investment-driven to consumer spending-driven. This shift is partly responsible for China's economic growth pace declining to a 25-year low (despite the central bank's efforts to boost the local economy by cutting China's key interest rate and relax reserve requirements for banks).

In mid-2015 concern about China (and its impact on the world economy) heightened as a stock market bubble busted, followed by the devaluation of the yuan in August 2015. China may cut its interest rate further in 2016 and may decide to devalue its yuan again. A weaker yuan would imply that other emerging markets, including Indonesia, will have to weaken their currencies as well in order to safeguard their competitiveness (in terms of export performance). For those investors that invest in Indonesian stocks, a weaker rupiah is cause of concern.

Infrastructure development is expected to grow strongly in 2016 backed by government spending and support (for example supported by incentives in the government's eight economic stimulus packages). The government earmarked a record IDR 313.5 trillion (approx. USD $22.9 billion), or 2.5 percent of projected gross domestic product (GDP), to infrastructure projects. Sectors related to infrastructure development, such as cement, construction, property and banking (as banks are expected to lend more funds for infrastructure projects) will feel the positive impact too.

In particular those companies that are partially government-owned, and thus having close ties with the government, are in a good position to collect contracts for these infrastructure projects (Wijaya Karya, Waskita Karya, Adhi Karya and Jasa Marga are examples of partially government-owned construction companies).

The property sector of Indonesia is expected to feel the positive impact of the government's fifth economic stimulus package as it scraps double taxation on real estate investment trusts. As such, property firms such as Ciputra Development, Pakuwon Jati and Bumi Serpong Damai are expected to see better results.

With Indonesia's GDP growth expected to accelerate to 5.3 percent (y/y) in 2016 while inflation is estimated to remain under control below four percent (y/y), people's purchasing power should improve. Therefore several blue chips stocks in the consumption sector are interesting, such as Indofood Sukses Makmur, Kalbe Farma, Unilever Indonesia and Gudang Garam.

Although crude palm oil (CPO) companies have been plagued by the low CPO price, they may experience a strong year in 2016 as the CPO price is expected to recover gradually due to curtailed CPO production and Indonesia's biodiesel program.

Top Stock Picks on the Indonesia Stock Exchange in 2016:

Company   Estimated
YoY Growth
Company   Estimated
YoY Growth
Bank Central Asia    +16.30% Nippon Indosari Corpindo    +20.00%
Bank Rakyat Indonesia    +21.70% Mayora Indah    +13.95%
Bank Mandiri    +28.80% Jasa Marga    +25.00%
Wijaya Karya    +22.00% Pakuwon Jati    +11.00%
Waskita Karya    +16.20% Ciputra Development    +13.10%
Pembangunan Perumahan    +15.50% Bumi Serpong Damai    +16.60%
Adhi Karya    +28.80% Astra Agro Lestari    +62.20%
Indofood CBP Sukses Makmur    +16.30% PP London Sumatra Indonesia    +11.50%
Unilever Indonesia    +10.73% Sampoerna Agro    +11.50%