2024 Market Outlook

Monetary policy easing cycle in 2024. Only several weeks until the end of the year, and we see that our JCI had bottomed out in Oct-23 and rallied since then, as the market believes that the Fed is finished with its rate hike cycle (the Fed projects its FFR at 4.6% in 2024, suggesting 75bps rate cut next year). Emerging market investors might interpret this as an early indication of risk-on sentiment, which may eventually spill over into emerging market assets. Moreover, equity assets, whose valuation as risk assets is quite undemanding, should benefit from the situation. We anticipate a transition in market attention towards the monetary policy easing cycle in 2024, as the global growth slowdown becomes more severe. Domestically, we expect GDP growth to receive a temporary boost from stronger consumption due to election spending as well as the new stimulus measures from the government to maintain purchasing power and inflation rate, including the Rice Handout Programme (IDR2.6tn), and El Nino cash aid for low-income households (IDR7.5tn). However, deteriorating ToT and weak external demand might lead to a CAD widening to 0.9% in 2024F, whereas imports are anticipated to remain stable. Given administered prices, we anticipate inflation to remain within BI's 1.5–3.5% target and BI to start its cutting cycle in Oct-24 at the earliest.

 

Foreign outflow from JCI. After booking a net foreign inflow of IDR 200bn in Nov-23, JCI reported a foreign outflow of IDR1.5tn MTD. On a YTD basis, net foreign inflows were IDR 1.5tn, lower than in 2022 (IDR44tn). We noticed that GOTO, BBCA, and BMRI recorded the highest capital outflows MTD. Amongst the big-4 banks, BBRI is the only one recording foreign inflow (IDR227.1bn) MTD. Meanwhile, TLKM, ASII, and BBRI booked the highest foreign inflows MTD. The total foreign institutional ownership fell to 11.8% in Nov-23 vs. 12.8% in the previous month and 15.1% in Nov-22.

 

2024F index target and key themes. We anticipate the index to be more volatile in 2024 as a result of investors possibly adopting a wait-and-see approach in light of the presidential election in 1H24. We forecast the JCI at 7,600 at the end of 2024, implying a forward valuation of 14x PE, which is still lower than its 1.0SD. We expect 2024 EPS growth to accelerate to 8.6% vs. 6.1% in 2023. We maintain our OVERWEIGHT call on consumer staples, banks, telecommunications, and property sectors. For the consumer sector, there is a potential positive catalyst coming from political campaigns that can boost people's purchasing power, especially for the middle-low segment, as well as support from manageable input costs. For banks, most of them are quite confident that their LARs could improve further in the future, and they are already comfortable with their current LAR and NPL coverage ratio, suggesting that CoC may still decline and they can maintain strong, long growth in the coming years. For telecom, we expect telco companies to book higher data traffic growth this year, supported by election momentum, and favorable mobile competition will continue to support their ARPUs. If we take a look at historical data, regional telco companies‘ data traffic usually started to spike two quarters before an election. For property, the property tax reduction stimulus (budget of IDR3.2tn) could lift presales in 2024F, and their valuations are quite attractive (currently trading at a 75% discount to NAV). Our top picks: BBRI, BMRI, TLKM, ICBP, DRMA, TOWR, and CTRA.