HXL remains positive on economic growth in Indonesia this year despite the country suffering the second biggest investor outflow in Southeast Asia as overseas investors unload Indonesia stocks over mounting domestic political and economic concerns. However, we believe there is still attractive buying opportunities as there are indications that consumption has returned to the country.
We expect real GDP growth of 5.6% in 2018 and 5.7% in 2019 based on improved credit growth and higher commodity prices increasing investment spending. An increase in investment spending by local companies may result in more people being hired which leads to higher wages and therefore higher consumption growth which has been a weak spot in the fourth-largest country.
Due to the last few years of soft economic growth, we expect inflationary pressures to remain low this year. Despite the Rupiah falling to a 27-month low this week in spite of central bank intervention, a weak U.S. dollar and a benign current account deficit should see a stronger Rupiah.
Finally, HXL still remains positive buying Indonesian equities, especially in consumer and financial sectors as we expect corporate earnings to increase during Q2 of this year with the Jakarta Composite Index to end the year up around 12%.