Market Outlook 2020 – Moduit with PT Principal Asset Management

Hi Moduers!

Approaching year 2020, it’s time to discuss about market outlook 2020. For this purpose, Moduit has collaborated with one of Investment Manager partners, PT Principal Asset Management to provide economic outlook in 2020. Hopefully all the information could help you better prepare for 2020 😊

 

1. How is the view regarding Global market in year 2020 in the midst of US economic slow down and trade war between US and China?

US economic growth has been quite high since 2016 supported by many fiscal boosters, including individual tax cut, VAT reduction and tax cut for corporations in 2018. Furthermore, there is monetary rate cut in 2019. However, we see there might be a slow down in US economy that is currently at around 2,5%-3% caused by absence of fiscal booster such as those implemented in the previous years. Moreover, trade war that has not come into agreement is also expected to have some impacts to the US economy.

2. Is there possibility of another Fed rate cut in 2020?

Yes, we see there is a possibility of interest rate cut if we look at few statements from Central Banks lately. However, the consensus of future interest rate will depend on data in US economy. If the economy slows down, we see there is potential rate cut of 1 to 2 times. Probability consensus of Fed rate at the end of 2020 is currently at 1,25%-1,5%.

3. How is the view prior to US Presidential election that will be conducted in November 2020?

Politic issue is one interesting event in 2020, especially from US side. However, it needs to be noted that in regard to Indonesia, US politics will have a neutral effect due to equity and bonds market in Indonesia depends more on domestic performance: interest rate, inflation, Rupiah stability and also earnings growth prospect in 2020. Although there are still many things to be closely watched, politics and economy stability in Indonesia are currently in a very good stage. Moreover, there is potential reform in 2020 with the new cabinet and market will most likely be more exciting as compared to 2019 and expected to be better moving forward.

4. How is the view of outlook of Indonesia economy in 2020?

The Global economy condition is still challenging in 2020 despite stable politics and economy in Indonesia. Hence, we see Indonesia economy to grow relatively flat at 5%-5,1%. One of the highest contributions that is also challenging for Indonesia government is consumption. However, we are still optimistic due to increasing investment with a number of policies issued by the government and also high government spending.

Indonesia trade, import and export, is still challenging. However, approaching 2020 we forecast this factor will improve due to government policies on imports. Hence, we expect Indonesia economy will become better in 2020 and current account deficit that has become concern all these times can improve in 2020. Other than this, we see the new cabinet layout will ease the execution of policies that will support Indonesia economy and hence will become positive catalyst for Indonesia equity market.

5. Will the Global economy slow down affect Indonesia economy?

Global economy slowdown that is caused by the uncertainty of trade war between US and China also has impact to Indonesia economy. Indonesia, as part of the world, will also get affected from the trade between countries, that has happened for past two years. However, we hope this factor will get better in 2020 noting market expects trade war between US and China will still happen for a longer period. However, things to note that there are positive sides from this event for Indonesia, that is Indonesia can become like other countries such as Vietnam and Philippines to be one of the supply chain of the factories that should have been in China or US. This factor can also become one positive catalyst for Indonesia.

6. How is your view in regard to bonds market in 2020?

2019 has been a great year for bonds where BINDO index has increased around 13,7% (10 December 2019). We still maintain positive outlook in 2020, considering inflation that is expected to still be stable in 3% level. There is a risk of inflation increase that is caused by few things such as increase in BPJS tariff, cigarette excise and possibly increase in electricity tariff. However, we believe government will carry out policies carefully due to politics and social risks. Therefore, our view on bonds market in 2020 is still positive.

7. How is your view on equity market in 2020?

In regard to the equity market in Indonesia, we expect there will be an increase of 8% with target JCI at 6800 in 2020. One of the positive catalysts in 2020 is Omnibus Law, which consists of 3 things such as 1) to increase employment, which is expected to lower the unemployment rate and support the economy, 2) small and medium enterprises where in year 2019 there are issues about possibility of reducing lending rate to expand credit for small and medium enterprises sector. If the initiative is being realized, small and medium enterprises sector is expected to be able to support the economy in 2020 and 3) Tax reform that is expected to be able to attract foreign direct investment (FDI) to Indonesia with lower tax. This is also one of the reasons why we assume the economic growth in 2020 will be supported by investment.

Therefore, it is expected that Omnibus Law will support the economic growth from the small and medium enterprises, employment and increase FDI to the country.

8. How is the strategy for Fixed Income Fund in 2020?

Bonds market in 2020 is still positive with real yield at around 4%, which is the difference between bonds yield of around 7% and inflation of around 3%. Inflation is predicted to be at approximately 3% or even lower in 2020 with certain risks such as inflation, US geopolitics and possibility of tax shortfall in 2020. We still maintain positive view until 1H 2020 and hold duration at 1x benchmark or around 6 years. However, afterwards probably we will try reducing the duration towards more defensive to anticipate the above-mentioned 3 risks.

From US Treasury or US Dollar denominated bonds, we expect the movement will be more fluctuative in 2020. The main reason is due to the US election that will be held in 2020. Second reason will be trade war tension between US and China that will have impact in the political stability in 2020. Therefore, we will be more defensive in USD bonds market.

9. How is the strategy for Equity Fund in 2020?

With positive equity and bonds market in 2020, we maintain a balanced portion for our portfolio. In terms of asset classes, we split a 50:50 portion between equity and bonds, supported by the possibility of interest rate cut and EPS growth at approximately 8%-10% in 2020 with target JCI level at 6800. Hence, maintaining balanced portion of 50% equity and 50% bonds will help in the portfolio risk management. In terms of sectoral, for equity market we prefer banking, plantation, infrastructure and healthcare sectors in our portfolio.

10. What is the product recommendation from Principal Asset Management to Moduers?

Choosing certain Mutual Fund product must be matched with individual’s investment goal. As for short term investment, Principal Asset Management recommends Principal Cash Fund product while for longer term investment, Principal Total Return Equity and Principal Index IDX30 are more recommended.

 

Sources:

  1. Lambok Tobing – Equity Portfolio Manager, PT Principal Asset Management
  2. Cindy Anggraini – Equity Portfolio Manager, PT Principal Asset Management
  3. Alvin Baramuli – Equity Analyst, PT Principal Asset Management
  4. Marlina Tri Maharani – Fixed Income Analyst, PT Principal Asset Management
  5. Trizar Rizqiawan – Fixed Income Portfolio Manager, PT Principal Asset Management
  6. Hendra Pramudya – Business Alliance, PT Principal Asset Management

 

PT Principal Asset Management (formerly known as PT CIMB-Principal Asset Management), is a joint venture between Principal Financial Group®, a member of the FORTUNE 500® and a Nasdaq-listed global financial services and CIMB Group Holdings Berhad, one of Southeast Asia’s leading universal banking groups. With more than 140 years of experience, currently Principal Group owns USD 692.2 billion of asset under management in the world (as per 30 June 2019).

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