by Leo Putera Rinaldy/Economist-Research Mandiri and Adrian Joezer/Equity Strategist-Research of Mandiri Sekuritas
2016 US Election Result: Surprise, Surprise
In the elections held yesterday, the US people are already choosing Trump as president of the 45th. The result is surprising because most polls (polls) predicted Hillary Clinton would win, these results make the stock and bond markets fell, although the US stock markets rebounded last night.
Looking at Trump’s Policy Preference
During the campaign, Trump policy choice is more to protectionism. He intends to withdraw from the Trans-Pacific Partnership (TPP) and will change drastically platform NAFTA North American Free Trade Agreement (NAFTA). Meanwhile, as stated US defense cooperation with Japan, South Korea, and NATO is not fair, it should increase the geo-political tensions. On the revenue side, in his campaign he had said he would lower taxes, especially for the corporation.
What will happen in the short term?
We rate the investor can switch to a risk-averse investment (risk-averse) because of the uncertainty raised. Trump does not have a track record as a politician or decision-makers in the past and if the campaign agenda into real policy, it could potentially make global economic growth slows (trade protectionist policies) and increase the risk of geo-politics. Small illustration of the risk-averse event can be seen from 1 month before US elections. When the possibility of Trump will win out over a period of 20 Oct 4th Nov, gold prices rose 3.1% in the same period.
Uncertainties mean volatility; Likely paused monetary policy
Until the new president will be based in the Oval Office of the White House on Jan17, introduced the members of the cabinet, and lays out his policies, we assess financial market volatility could still occur. End of the year remaining two months, while the price index (JCI) has given a return of 18% since the beginning of the year-YTD (24% denominated in US dollars), the 11th largest globally.
In valuation, the Indonesian stock market valuations are traded on stock price per earnings ratio (PE ratio) 14.9x 2017F is based on consensus forecasts of market participants. Due to the increase in uncertainty and potential volatility, we assess Bank Indonesia will hold interest rate policy in the next meeting of the board of governors (next week).
Predictions possibility of the Fed raising interest rates already down to below 50% from 82% before the US election results come out, and the possibility of providing some support to Indonesia.
For the stock market itself, we assess the sale of massive (massive sell-offs) it can be a chance to get into the company names defensive quality (high-quality defensive) with a strong domestic market exposure.
We provide Buy recommendation for the stock still underperformed compared to JCI. Target index and our top pick is Under Review.
Medium term impact: what if protectionism is implemented
Due to the impact of short-term US elections over the financial markets, we assess the medium-term impact will be more pervasive in the real sector. If the protectionist policies of President Trump introduced next year, we believe it can -to-size will give some negative impact on trading conditions.
Indonesia’s exports to the US has been rising since 2013, and today has become the main export destinations of Indonesia, reached 11.5% (Jan-Jul16). The main export products are textiles, electronic products, and footwear.
On the other hand, US investment in Indonesia is relatively small and only berporsi 2% of the Foreign Direct Investment (FDI) in the period 9M16 and is in 10th position.
Overall, the sensitivity we show that every 1% increase in US economic growth will contribute to economic growth 0,05ppt Indonesia.