The world equity markets ended on a high note in 2009. JCI returned +87%, the strongest performance since 1993 and the second best performing market in Asia (behind Sri Lanka).
Apart from the obvious reasons for the surge in the equity market – recovery of confidence from fiscal stimulus and massive injection of liquidity in China and major western economies – Indonesia had a number of specific characteristics that placed in good stead. The country has a relatively low dependence on exports and a low public debt to GDP ratio – this meant that the country escaped relatively unscathed from the crisis. And with the greater political stability after SBY’s outright win during Oct 2009 election, a surge in foreign interest returned to the Indonesian stock market.
It is against this back drop when posit the next 12 month’s outlook. First, 2009’s stellar performance will not be repeated in 2010, because the market is now less attractively priced. Some uncertainties remain in the months ahead. Western economies are not out of the woods yet - consumer debt levels remain elevated and major U.S. and European banks continue to be reluctant to lend.
“We expect consumption spending in western economies to remain sluggish for many years to come and corresponding GDP growth rates to remain below levels that we have seen before the crisis,” said Nikhil Srinivasan, Chief Investment Officer, Allianz Investment Management Asia.
Second, the continued interest and confidence in the country will be in part driven by SBY government’s policy actions and reforms. Much has been said about the dire need for infrastructure spending in the country. SBY’s has expressed a desire to raise Indonesia’s GDP growth rate to 6.6% over the next five years and investments in infrastructure is a key piece in this strategy. He also recognizes the need to attract more FDI by making Indonesia and much more friendly and conducive place to do business.
“We are cautiously optimistic of the market in the year ahead but remain cognizant of the uncertainties in the global economy and any potential setbacks at home,” said Nikhil.
Investment guide in 2010
For equities, there are good opportunities in the infrastructure, property, consumer, banks and selected mining companies. In the infrastructure space, exposures through cement companies are preferable – which have good pricing power and attractive industry structure – rather than construction or toll road companies. Companies with strong business models and market positions, selling at reasonable valuations are in favor.
“We will also selectively acquire stocks that are out of favour but with favorable risk / reward attributes. But most importantly, we will stay nimble and discipline to capture opportunities and mispricings that will emerge with the increase market volatility,” expressed Nikhil Srinivasan.
For the fixed-income market, the duration risk given that some monetary tightening may occur in 2010 should be considered. Although BI kept the policy rate unchanged at 6.5% and its policy statement turned more dovish at its meeting in the first week of January 2010, we remain vigilant on the inflation risk tied to food prices and movement in administered prices, as well as the banks’ credit growth, especially in the second half of the year. In the corporate bond space, we remain selective and favor companies with high quality balance sheets and stable income streams.
Allianz Unit-linked funds performance
“We are very happy that positive investment climate, especially within the second semester of 2009, has brought an amazing growth to our unit-linked business,” said Jens Reisch, CEO of Allianz Life Indonesia. “As for our unit-linked customers, our prudent investment policy gave sustainable returns,” Jens Reisch added.
Both conventional and Sharia unit-linked funds of Allianz Life Indonesia showed significant growths in 2009. Its conventional unit-linked assets grew by more than 34% to IDR 4.4 trillion while the Sharia unit-linked assets grew by more than 120% to IDR 289 billion, compared to year 2008.
“With a positive investment outlook in 2010, we are sure that unit-linked life insurance will still be the customers’ main choice due its nature that offers complete protection with good investment result and flexibility in funds selections and withdrawals. Our unit-linked business will continuously drive the growth of our life insurance business,” predicted Jens Reisch.