Research & Stock Picks

Daily Report

08 November 2023

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A Dark Cloud is Looming Over JCI

·         MKMK’s verdict increases the political uncertainty ahead of the 2024 elections.

·         SBN (bond) investors have anticipated this situation, as reflected by the INDOGB yield curve, which is moving toward an inversion.

·         SBN investors' concerns are also based on signs of economic overheating ahead of the election.

The Constitutional Court Ethics Council’s (MKMK) verdict that the Chief Justice of Constitutional Court Anwar Usman has commited a ‘major ethical violation’ in ruling the age limit for presidential and vice presidential candidates has resulted in political delegitimization of the ruling itself and the candidacy of Prabowo Subianto-Gibran Rakabuming Raka in the 2024 elections. According to political experts we talked to, MKMK's statement that Anwar Usman was proven to have deliberately provided chances for intervention in the  ruling  of presidential and vice presidential candidates’ age limit has provided a great opportunity for political maneuvering for PS-GRRR's competitors. As a consequence, political uncertainty ahead of the 2024 elections will be high, putting a psychological burden on JCI players, even though the PS-GRRR election winning team insists that the MKMK’s verdict has no effect on their candidacy.

We believe that SBN (bond) investors have anticipated this situation beforehand, as reflected by the movement of the INDOGB yield curve, which is moving toward an inversion, with the 10Y Vs 2Y inverted yield spread widening to -16 bps (11/6: -1 bps). In our opinion, the initial movement of the INDOGB yield curve was not only influenced by political uncertainty, but also the economic situation which was overshadowed by the potential for ‘overheating’ (see Disappointing effect of pre-election fiscal stimulus) and the lower-than-expected 3Q23 GDP growth. Investors' concerns in the SBN market may only be temporary, and we think that this pattern still needs to be confirmed in the future.

We advise investors to remain calm and cautious in dealing with this situation, by maintaining  defensive positions in our sectoral picks.

Even though the political uncertainty triggered by the MKMK verdict is looming over the JCI, political experts we contacted feel optimistic for the long term. This is based on the fact that Indonesia's democratic system, which was considered vulnerable so far, turned out to have high resilience. This confirms academic observations made by political expert Ken M. P. Setiawan (University of Melbourne) in his article,  “Vulnerable but Resilient: Indonesia in an age of Democratic Decline”.

Sector Recommendation: Food retailers, cigarettes, telco infrastructures, hospitals.

 

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Samuel's Global Macro Strategy Morning Notes 8 November 2023 (Eng)
Samuel's Global Macro Strategy Morning Notes 8 November 2023 (Ind)

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Samuel's Global Macro Strategy Morning Notes 8 November 2023 (Eng)
Samuel's Global Macro Strategy Morning Notes 8 November 2023 (Ind)

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