In February, Balanced Fund (BLF) and Cash Fund outperformed, while Amanah Syariah (ASF) underperformed their respective benchmarks. Within Equities, returns came from a mix of sectors, where Big Banks were the main drivers of returns. Within FixedIncome, the bond market saw volatility characterized by robust movements in benchmark yields.

  • JCI generated 1.50% gains in February driven mainly by the Big Banks and continued outsized gains of BREN and AMMN.
  • A one-round election resulted in a rally in Indonesian equity markets but was short-lived due to global macroeconomic uncertainties. Wesee continued uncertainty across China’s fragile economy, the upcoming US elections, slower than expected dis-inflation in the US, and formation of the new Indonesian government cabinet.
  • The government bond market experienced volatility, witnessing an increase in the yield of the 10-year Indonesian government bond from 6.58% to 6.61%. Portfolios heavily concentrated in benchmark series are positioned for less favorable returns, whereas those with off-benchmark series may show better performance.

Outlook: February recorded higher inflation of 2.75% mainly driven by higher volatility in food commodities (i.e. rice). However, core inflation remained identical to January’s figures at 1.68%. The Indonesian Rupiah briefly strengthened, but weakened to 15,700 closer to the end of the month on a weaker February Foreign Exchange Reserves expectation.

Within Equities, we expect a slight correction in the JCI driven by a profit-taking sentiment in big cap stocks and a lack of foreign inflows. With some correction in individual securities, we increased coverage across discounted value and quality stocks. As such, our strategy remains unchanged, prioritizing blue chip, value, and quality stocks. 2023 Full Year results are expected in March and therefore expect some volatility in the JCI. We trimmed some of our core holdings such as BBCA, BMRI, BBRI, and JSMR, and we look to continue trimming constituents as necessary to reduce volatility. As uncertainty remains high, we refrain from over-allocating into opportunistic stocks.

Within Fixed Income, we remain cautiously optimistic and aligned with the Bloomberg consensus of a potential cut in the US Fed’s interest rates as early as May 2024. The recent Indonesian presidential election and the formation of the cabinet have become a focal point of discussion, particularly for foreign investors. We identified attractive opportunities across various maturities, ranging from short to mid-term, given the current flat yield curve. It is crucial to highlight the significance of maintaining stability in the domestic market to encourage the resurgence of foreign investments in the Indonesian government bond market

Takeaways

Equities:
  • BLF: Equities within BLF delivered positive returns, however, underperformed the JCI. Equities returned 0.90% (compared to1.50%) with BBRI, TLKM, and BBCA, as the top 3 contributors, while GOTO, MIDI, and DRMA, were the top detractors from performance.
  • ASF: Equities within ASF delivered flattish returns, despite outperforming ISSI. Equities returned -0.08% (compared to-0.87%) with ASII, AUTO, and MYOR as the top 3 contributors, while BTPS, GOTO, and MDKA were the top detractors.
  • Across all portfolios, we look to maintain exposure to our core holdings, focusing on big banks, while trimming where necessary. We added and trimmed JSMR as we deemed it to have reached its support level and our internal target, respectively.
  • 2023 Full Year results are expected in March, hence, we expect some market volatility. However, we are optimistic that ourholdings should post encouraging results.
Fixed Income:
  • The sukuk portfolio within ASF demonstrated relatively modestgains. Conversely, longer bonds in the BLF exhibited a moreadverse reaction to the volatility in government bond markets.
  • The somewhat less liquid sukuk contributed around 0.21% to the monthly performance of ASF, while conventional bonds contributed a total return of 0.16% for BLF.