EQUITY OUTLOOK 2022 - Schroders

EQUITY OUTLOOK
     2022

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EQUITY FUND MANAGER’S THOUGHTS
   Indonesia valuation is lagging big time against Asia ex-Japan.
   Few line-ups from the new economy space could provide upside for the market in
    2022.
   Overall, we see earnings growth recovery in 2022 due to economy reopening and high
    domestic consumption exposure in Indonesia economy.
   High exposure from local institution on fixed income provides room for allocation
    towards equity and China regulatory headwinds provide reallocation to Indonesia.

I
    ndonesian equity market had an anomaly year in 2021. There was a significant
    performance gap between the hype sector proxy such as technology as digital proxy was
    outperforming the general economy stocks despite of the illiquidity and the excessive
valuation. This is driven due to the sharp increase in retail investor participation while there is a
lack of underlying growth in the general economy space due to covid uncertainty. This caused
significant outperformance of JCI sector versus the blue chip index by 9% YTD November. We
think this trend should subside as the general economy should be able to offer some growth in
2022 whilst valuation is undoubtly more reasonable.

As the global inflation start to creep up with interest rate hike on the horizon, we think there
will be some rationalization on the overvaluation of the hype sector. The still abundant liquidity
in the system should also provide some cushion on growth outlook to the general economy
name. The phenomenon of high commodity price could also spill over until 2022 and Indonesia
is a clear beneficiary of the environment being a major commodity producer of nickel, copper,
and other basic commodities. Additionally, there is a strong correlation between commodity
prices and domestic consumption which would be positive for the Indonesian economy. This
comes at a time when Indonesian equity market is mostly ignored by foreign investor and its
own domestic investor due to the small size and the poor past performance, hence we see
upside opportunity for Indonesia equity in 2022.

Figure 1. Indonesia market is still behind some Asian peers in terms of valuation

 Source: Bloomberg

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Figure 2. Indonesia equity market valuation trails
                                      behind India’s despite similar background

The uncertainty which remains
over Chinese internet stocks
could create an opportunity for
Indonesia new names issuance in
the tech space. Within the private
market the gain on this space is
significant and some of these big
established names will be going
into public market in 2022.

This     should    attract    more
re-allocation       from       the
high-profile internet sector in
China as regulatory concern
continues        to        weigh-in
competition. India is an obvious
beneficiary     of    the    China
uncertainty     alongside     more
conducive regulatory backdrop,
corporate earnings recovery, as
well as IPOs.

However, valuation seems very
stretch now in terms of P/E while
Indonesia is also offering similar
profile as India with much
cheaper valuation.
                                                           Source: Bloomberg

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THE BROAD INDEX PROVIDES ATTRACTIVE UPSIDE

While there has been an increase in JCI market price, most of the increase was driven by
selected names while the blue chip index still lagged considerably. Hence, we think there is
higher upside in the blue chip names.

The parts of stock market in Indonesia that do look cheap on headline multiples are sectors like
banks and consumers. These sectors are typically beneficiaries of higher interest rates and the
expansion

Figure 3. Blue chip index LQ45 underperformed           Figure 4. Sector composition JCI vs.
JCI index YTD                                           LQ45 as of November 2021

Source: Bloomberg                                       Source: Bloomberg

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DISCLAIMER
INVESTMENT IN MUTUAL FUND CONTAIN RISKS, PRIOR TO INVESTING IN MUTUAL FUND, INVESTOR
MUST READ AND UNDERSTAND THE FUND PROSPECTUS. PAST PERFORMANCE DOES NOT INDICATE
FUTURE PERFORMANCE.

The views and opinions contained herein are those of the author(s) on this page and may not necessarily rep-
resent views expressed or reflected in other Schroders communications, strategies or funds. This material is
intended to be for information purposes only and is not intended as promotional material in any respect. The
material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not
intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommen-
dations. Reliance should not be placed on the views and information in this document when taking individual
investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value
of an investment can goes down as well as up and is not guaranteed. All investments involve risks including
the risk of possible loss of principal. Information herein is believed to be reliable, but Schroders does not war-
rant its completeness or accuracy. Some information quoted was obtained from external sources we consider
to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data
may change with market conditions. This does not exclude any duty or liability that Schroders has to its cus-
tomers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be
viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We be-
lieve we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we
currently know. However, there is no guarantee that any forecasts or opinions will be realised. These views
and opinions may change.
PT Schroder Investment Management Indonesia, 30th Floor IDX Building Tower 1, Jl. Jend. Sudirman Kav 52-
53, Jakarta 12190, Indonesia. PT Schroder Investment Management Indonesia is authorized as Investment
Manager and supervised by Indonesia Financial Services Authority (OJK).

PT Schroder Investment Management Indonesia
Indonesia Stock Exchange Building Tower 1, 30th Floor
Jl. Jend Sudirman Kav. 52-53 Jakarta Indonesia 12190

Website: www.schroders.co.id
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