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Tuesday, May 30, 2006

Comments

Carl

How can there be a risk of stagflation in indonesia??

Agree that input prices are increasing, but that is happening the world over. The Indonesian economy is forecast to grow at 5.5% this year (06), and should be even quicker in 2007, when the Central Bank start decreasing rates from the current 12.75%. When that happens watch the consumer driven economy fly and Astra sales go with it. The Indonesian central bank is one of the few in Asia that will be cutting rates over the coming year, as they have already taken the pain from higher global oil prices (when they cut the fuel subsidy and doubled prices back in Sept 05). As a result inflation spiralled to 17%, interest rates moved to slow spending and attract capital inflow. Now we are seeing an economy that is ripe to move in 2H06/2007 as the year-on year inflation figures drop out in October allowing the bank to further reduce rates.

Astra is only having a tough time at the moment because it is an interest rate sensitive stock. The Indonesian consumer has relied on cheap credit for the past 3 years which has fuelled domestic spending, and is happy to sit back and park his savings in a bank earning 12% interest, rather than spend when borrowing costs are high. He will return when rates reduce below 10%, and the economy starts to motor, whilst the US will be the one coping with stagflation, and the rest of Asia is in tightening mode.

Agree that expectations of growth, will not be worth much in the face of disappearing liquidity - but comments of Indo stagflation are way off the mark. Mkt may not be cheap relative to asia-ex, but consensus is for 15% earnings growth in 2006, 13% for 07 - looks good enough for me. Banks, property and finance related stocks for the bold will be big winners in 2007, unless the domestic demand recovery is so strong that the current account weakens significantly causing the central bank to raise rates to slow demand. That is the start of another cycle however!!!

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