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Rabu, 06 April 2011

Rupiah bull, recosting capital - CLSA

Nick Cashmore argues that the Rupiah has long been considered a poor store of value. But in today’s global macro climate, Indonesia looks like a paradigm of fiscal virtue.

Indonesia is a dollarized economy. Consumers may not be aware as such, but many products consumed domestically are heavily influenced by the currency. The table below shows the dollar sensitivity for various consumer-related companies.

Key points from Report:
A strengthening Rupiah = improve domestic purchasing power = reduce cost structures of domestic firms = set off investment boom.
A decade of fiscal conservatism has left Indo as one of the least indebted countries in Asia.
Public debt to GDP could reach 15% by 2012

Unless Indo adopts a loose monetary policy (a-la USA), monetary policy must tighten, and currency must rise, leaving Indo with 2 choices:
1. Spend on infrastructure and capital investment (stabilize public debt & push GDP growth >7%)
2. Govt is unable to break cycle of mal-investment (public debt to GDP goes down further, GDP growth remains trend bound) OWT domestic firms with strong local franchises (KLBF, INTP, SMCB, MAPI, ACES) and rate sensitive stocks (BMRI, BBCA, BBNI, BSDE, SMRA , LPKR).

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