Indonesia upped to O/W, Indo auto tour, CPO - JP Morgan

* Research call – Indonesia upgrade by JPM EM strategist Adrian Mowat. The drivers of markets are transitioning. In the J.P. Morgan View the bias for DM economic data is now neutral rather than positive. This, combined with a slight outperformance of EM vs DM has led to us closing out our underweight EM vs overweight DM trade. Adrian believes the rotation into exporters from domestic demand sectors is now mature. We upgrade domestic demand to OW and downgrade Taiwan to neutral. Previously we were OW ASEAN ex Indonesia; we modify that to simply OW ASEAN.

Our base case is stability in both China and Saudi Arabia. Their response can be described as placate and contained. Placating the population has a price in China; lower margins for SoEs due to price controls. We are UW China, particularly SoEs.

My take – BMRI, SMGR, ASII, APLN, and ELTY are my favourite domestic plays. But in fact, I feel good about the Indo coal stocks as well, that rightly or wrongly have been sold down on oil price concerns.

* Research call – Automotive sector: Everybody is adding capacity in Indonesia. Aditya Srinath hosted a small group of investors in Indonesia as part of J.P. Morgan's first ever ASEAN Auto tour. The trip featured site visits to manufacturing facilities and senior management interactions with teams from Yamaha, Astra Honda Motors, Toyota Motors, Toyota Astra Motors, and Isuzu Motors.

An interesting feature of the visit was that every company we visited was in the midst of a capacity expansion bar one, which plans to add capacity next year. We see this as a sign of confidence in the prospects of the Indonesian 2 & 4 wheeler markets.
My take – Time to take a much closer look into Indomobil (IMAS).

* Research call – Crude Palm Oil: Key highlights from Day 1 of KL Palm Oil Conference. The consensus today was for weaker palm oil prices in 2H11. Consensus among the speakers today is for CPO prices to weaken to M$2,500-3,200/t in 2H11 (versus spot of M$3,692/t, YTD of M$3,752/t). This is mainly on the back of a yield or production pick-up in global CPO production expected by 2H11. A speaker at the palm oil conference is forecasting global CPO output to rise by 2MT in 2011E (versus an increase of just 0.5MT in 2010). We are expecting palm oil output to rise by 2.5-3.0MT in 2011E.