STRATEGY REPORT - Overweight - Our first take on the market impact of Trump 2.0

Short-Term market volatility following Trump victory

Donald Trump secured a second term as president after winning key battleground states on November 6. The outcome of the U.S. presidential election is not limited to its domestic implications; it has the power to reverberate globally, particularly affecting countries such as Indonesia. The JCI slumped to 7383.87 (-1.44%) following Trump's victory. The spot dollar was quoted at Rp15,840, down 0.4% from the previous day. Trump has promised levies on U.S. imports that would upend global trade, tax cuts that would further strain the federal budget and deportations that could shrink the pool of cheap labor. This poses two main risks: Slower economic expansion around the world and faster inflation at home.

 

High US inflation could lead to shallower path for Fed rate

The prospect of higher inflationary pressures could make it more difficult for the Fed to steer the economy to a soft landing while keeping prices under control.  The Fed announced a 25bps rate cut on November 7. However, there are now questions about the chances of another cut next month and the outlook for next year. And if Trump follows through on his campaign promises, they could make it more difficult for the Fed to continue cutting rates as quickly. He has promised a combination of tax cuts and tariffs that economists and investors say could fuel inflation. Given the changing administration, Fed officials may soon have to start taking Trump's plans into account when considering their own policy outlook.  Our economist maintains a baseline view of a 100bps cut in both 2024 and 2025.

 

Foreigners turn net seller in October and continue in November

Foreign investors have once again shifted their stance in the Indonesian stock markets in October, transitioning from net buyers to net sellers. They sold off stocks amounting to USD719 mn in October. This comes after three consecutive months of being net buyers, where they purchased stocks worth USD411 mn in July, USD1,847 mn  in August, and USD1,418 mn in September. On November 6-7, the Indonesian stock market saw combined net foreign outflows of Rp2.76 tn (USD178 mn), with the largest outflows seen in bank stocks BBRI (Rp866 bn), BMRI (Rp851 bn), BBCA (Rp599 bn), BBNI (Rp218 bn), followed by coal stock ADRO (Rp120 bn). This resulted in an outflow of USD152 mn in the month to date, but still recorded a cumulative net buy of USD2,378 mn in YTD. (Exh. 1)

 

Markets better prepared for Trump this time

We believe the atmosphere surrounding the 2024 US presidential election is markedly different from 2016 election. The 2016 election was a venture filled with uncertainty. At that time, the market widely expected Hillary Clinton to smoothly take office, but Donald Trump's unexpected victory was a very big surprise to tranquility of global capital markets. With President Trump running for office again, the market seems to be better prepared, We believe most corporates will probably have adjusted to the situation by now since the start of the US-China trade tensions in January 2018 when Trump began setting tariffs. This time, investors are not gripped by fear of the unknown but are instead hopeful regarding the potential continuation of Trump's economic policies, including tax cuts, deregulation, and infrastructure investment.

 

Faster market recovery expected than 2016

Our review of JCI's performance after Trump won the election on November 8, 2016 showed that JCI declined by 4.4% to close at 5,149 by November 30, 2016 and rebounded by 2.9% to close at 5,297 in December 2016. In 2017, In 2017, JCI continued to rebound and closed 20% higher at 6,356 (Exh. 2). If history is any guide, we remain confident that our year-end 2025 JCI target of 8,400 (16% upside from the current level of 7,244) is achievable. We believe that once the excitement of Trump's election victory fades, markets may return to US fundamentals on a slowing economy and further rate cuts. Yesterday's Fed rate cut is expected to help the market recover faster this month than in November 2016, while our economist sees another 25bps Fed rate cut in December, both of which we believe would help the JCI rebound. Our top picks remain: BBRI, BBTN, ISAT, EXCL, ICBP, PTBA, MBMA, SMRA and MAPI (see our 2025 market outlook for more details).