JPMorgan economist Sin Beng Ong revised his rate hike expectation for Indonesia, on the back of higher print on December inflation. He now expects three rate hikes of 25bps each: two during 2Q11 and another in 3Q11 (previous expectation was one in 2Q11 for 25bps).
What’s changed also is the recent government approval to stop private cars (excluding public transport vehicles and motorcycles) from using subsidized fuel with the program expected to be rolled out in phases starting at the beginning of 2Q11 in West Java and Jakarta.
Sin Beng has lifted his cumulative inflation in Indonesia to between 7.0-7.5% in 2011 (an average monthly run rate of 0.6%m/m, nsa) from 6.20% in 2010 (with an average run rate of 0.52%mm, nsa). With this run rate, full year over-year-ago inflation is expected to reach 7.5-8.0%, reflecting to some degree over-year-ago base effects from 2Q10.
Rotation trade from Indo financials/cement into coal/CPO should continue to be in play for 1Q11 (taking into account the potential BMRI placement in the coming weeks). My top pick is INDY and INDF. If you have to be in banks, prefer BBNI and/or BBRI.
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