Yunindita Prasidya, Jakarta – Blue chip stocks, or the so-called big caps, will benefit from foreign capital inflow, seen by the local stock exchange following the United States election, analysts have said, as the appetite for investing in emerging countries grows.
Hariyanto Wijaya, head of research at Mirae Asset Sekuritas Indonesia, the country's top brokerage house by trading volume, value and frequency, said foreign investors mostly invested in exchange traded funds (ETFs), causing big caps to rally on the Indonesia Stock Exchange (IDX). ETF is a collection of securities that often tracks an underlying index.
"The ones that have rallied recently are big cap companies because many [foreign investors] enter the market by buying Indonesian ETFs," Hariyanto said during a virtual media briefing hosted by the securities firm on Friday. "That is a positive for Indonesian big caps, one of them is banking."
As of Friday, the finance sector still booked a year-to-date (ytd) contraction of 7.35 percent. However, the sector's fall was less dramatic than the fall of the Jakarta Composite Index (JCI), the main gauge of the IDX, which was recorded at 13.31 percent during the same period.
The LQ45 index, which tracks the top 60 companies with the highest market capitalization over the last 12 months, among other indicators, gained 9.5 percent in November's first two weeks but has shrunk 14.52 percent this year.
For most of the year, foreign capital has fled the country as the bourse was hit by COVID-19-driven market panic. The panic was especially evident on March 24, when the JCI fell to 3,937.64, the lowest in eight years. Lingering uncertainty about the end of the pandemic has raised doubts over whether the foreign investor selling spree will continue.
In his presentation, Hariyanto noted that this year, foreign investors had consistently sold more stocks than they bought, with September booking the most outflow due to concerns over the draft revision of the Bank Indonesia (BI) Law.
In October, however, net foreign outflow had receded to US$252 million from an outflow of $1.05 billion in September, according to Bloomberg data, Hariyanto cited. This month, a net foreign inflow of $56 million was recorded as of Nov. 11.
"Suddenly, in the month of November, foreign investors returned to emerging markets, with Indonesia [booking] inflows," Hariyanto said. According to data on daily net foreign flow to Indonesian equity, the turning point coincided with the United States election taking place.
He added that other emerging markets, including the Philippines and Thailand, had seen a similar rush of foreign capital inflow, while some others, in this case, Malaysia and Vietnam, had yet to see signs of net foreign capital returns.
As of Friday, foreign investors have sold Rp 42.05 trillion worth of stocks more than they bought on the Indonesian stock market. To give a comparison, by the end of last year they bought Rp 49.2 trillion more than they sold, according to data from the IDX.
"I think the foreign inflow will be quite sustainable in the next few years," BNI Sekuritas head of equity research Kim Kwie Sjamsudin told The Jakarta Post via text message on Friday.
"The United States' status as a safe haven will weaken if the trade war subsides under Biden. This will increase the attractiveness of emerging markets and weaken the US dollar."
In a research report written by Kim that was published on Nov. 9, he noted there were a couple of beneficiaries going forward. "Liquid big caps should benefit from foreign investors seeking liquid, investible stocks," he wrote.
The commodity sector would also be benefited from rising commodity prices, while companies with high import content such as pharmaceutical, consumer discretionary companies and those with high dollar-denominated debts would benefit from stronger rupiah, Kim added.
Hariyanto of Mirae Asset had expressed a similar view, elaborating that the outlook for commodity prices would be bullish, especially for nickel and crude palm oil (CPO) prices.
He explained that demand for nickel would increase, supported by China's One Belt One Road program and the development of electric vehicles (EVs) batteries, both of which required nickel.
The two factors led him to say "buy and hold" would be a good strategy when it came to nickel-related companies, as nickel prices were projected to rally in the long term, while adding that for those who wanted to "enjoy the volatility", they could use the sentiment for short-term trading as well.
As for CPO prices, he was also of the view that CPO price rally would be quite lengthy – "at least until the first quarter of 2021".