The JCI edged 0.54% higher on Friday October 11th, which indicates a modest but positive movement in the Indonesian stock market. Despite this gain, JCI still recorded a net foreign outflow of IDR88.9bn, although we see this more as a positive catalyst rather than a negative catalyst.
This has showed that the foreign outflow has eased. This easing could imply that foreign investors are gradually stabilizing their positions after heavier sell-offs, possibly influenced by a variety of factors like exchange rate stability, limited remaining foreign investor ownership, or confidence in Indonesia’s economic outlook.
JCI Foreign Flow Comparison (1 Day and 1 Week)
The foreign outflow which we believed was mainly caused by recent PBOC stimulus may not be as significant as investors first thought it would be. Our economist team sees its overall impact is expected to be limited. With an Incremental Capital-Output Ratio (ICOR) of 8.1, China requires substantial investment just to achieve a modest 1% GDP growth, highlighting the capital-intensive nature of its economic structure.
The ICOR measures the amount of investment required to generate 1.0% GDP growth. For the five years leading up to 2023, China's ICOR was approximately 8.1, indicating that 8.1% of GDP investment was necessary for 1.0% growth. With 2023's fixed investment at around 42.1% of GDP and a 5.2% GDP growth, the ICOR remained at 8.1.
Despite efforts to reduce interest rates and increase liquidity, demand across various sectors remains weak. Even in an optimistic scenario with additional fiscal support, China's GDP growth for 2024 is projected to reach only 5.5%, a marginal increase of just 0.36% compared to this year.
China's GDP Growth vs Investment to GDP Contribution
Based on our economists' view, we believe Indonesia’s capital markets are becoming increasingly attractive to foreign investors. While China’s growth is constrained by global trade tensions and a high need for capital, Indonesia presents better opportunities for higher returns. Given the limited effect of China’s stimulus, we believe Indonesia stands out as a more favorable destination for foreign investment.
Therefore, investors may prepare for the return of capital inflows and look for stocks that have experienced the largest recent foreign outflows, such as BBRI and BMRI, as these stocks have seen significant outflows without a corresponding decline in fundamentals.
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