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Four Pillars of GDP: Driven by private consumption

Indonesia’s GDP has been growing at a rapid pace, 5% over the past year. Private consumption and investment have been the main contributors to GDP growth, while government consumption has been slightly reduced, despite the government’s big plans for infrastructure and energy investments over the next five years.

Heightened earnings, rich valuations growth expected

Earnings saw a recovery in 2016, but analysts’ estimates for 2017-2018CE* are in the double digits. Return on equity (ROE) is the highest among Asian markets, expected at 16% for 2017, and a price-to-book of 2.8x.

Four Elements: Indonesia’s rank relative to Asia

Overall, Indonesia is moderately attractive in Asia, considering all our four elements: Fundamentals, Valuation, Momentum and Risk.

Fundamentals: Indonesia has the highest ROE in Asia, hence strong profitability.

Valuation: The strong fundamentals are reflected in the second highest price-to-book in Asia, only India trades at a higher PB.

Momentum: Slow price momentum mixed with decent earnings growth.

Risk: The market’s price volatility compared to other Asian markets is relatively high.

Industrials have seen the largest stock gains in 3Q17

Top 3 largest sectors: Financials: 29% of the market; Consumer Staples: 23%; Consumer Discretionary: 11%.

Best sector & stock: Industrials: +16.9%; PT Totalindo Eka Persada Tbk: +295.7%.

Worst sector & stock: Utilities: -21.7%; PT Perusahaan Gas Negara (Persero) Tbk: -30.8%.