Don’t fight the current Taye Shim (
[email protected]) Head of Research / Strategist Mirae Asset Sekuritas Indonesia Research Emma Fauni (
[email protected]) Research Associate Mirae Asset Sekuritas Indonesia Research June 26, 2018 Don’t fight the current . Turbulence driven by external factors: It has been a rollercoaster ride for the Jakarta Composite Index (JCI) in 1H18. The JCI started off with a good start reaching a year-high of 6,693pt on February 20. However, the upward trend was reversed following the release of Fed minutes hinting gradual monetary policy normalization (rate hikes). JCI continued its downward spiral driven by external issues including nuclear threats from North Korea, rising geopolitical risks in Middle East, US- China trade tensions, etc. How’s the domestic growth story? Macro wise, we think it’s not too hot, not too cold. External issues continue to challenge growth, however, domestic growth is strong enough to cushion the impact (stable consumption and exciting investment growth). Corporate earnings remain elusive amid stubbornly low inflationary backdrop. Indeed, our Universe revenue growth is projected to slip to 9% YoY from 13% YoY (2017). However, considering the gravity of the recent market pullback (-8% YTD), we judge market reaction to be overdone. The unwinding of index funds: Large caps were the darling during the strong inflows driven by global index funds. As market volatility escalates redemption of index funds have relentlessly net sold large caps regardless their fair value. As we expect prolonged strong dollar to prompt Long USD/ Short EM Asset strategy, we think the unwinding process is less likely to be short-lived.