Last night, DPR voted for option C (violation on Bank Century bail-out) with
325 votes, against option A with 212 votes. Option C recommends that (1)
Police, KPK, and distric attorney do follow-up investigations on institutions
and individuals deemed responsible, with a matrix of names being submitted. (2)
President SBY to elect BI governor immediately, for a more effective
performance. The Pansus is also requesting Boediono and Sri Mulyani to be
non-active while the investigation is on-going. ANALYSISThe ball is now on
president SBY's hands. He does not need to take any action until Boediono and
Sri Mulyani are proven guilty, unless he bows down to the political
pressure. My interpretation of the Bank Century vote results is that outcome
essentially reflects a political stance against Sri Mulyani (and perhaps
Boediono) staying in their current role, above any other things. From this
point on, perhaps we should just assume that finance minister Sri Mulyani will
move on to another role; the question is how graceful and how soon. It remains
to be seen whether Boediono will have to step down. MARKET IMPACTExpect a rocky
reaction to the event, but in one year time, I believe the change may prove
positive for economic growth (and therefore equities). One can argue that the
change is a slight negative for bonds, in that it may take longer before Indo
sovereign rating gets another notch upgrade. Among others, possible policy
changes are: (1) more lenient budget on land acquisition fund for toll-roads,
(2) more lenient government guarantee on power purchase contracts, and (3)
more aggressive fiscal deficit overall. Overly aggressive fiscal approach pose
long term risk, but in the medium term the country's fiscal position can afford
a more aggressive stance. Domestic investment activities may pick-up on the
back of the change, while it remains to be seen whether FDI will take the
plunge. One of the key issue we need to monitor is whether the coalition
between president SBY and Golkar party stays intact post this event. If the
government opposition gets stronger, than investors will doubt policy
effectiveness going forward. RECOMMENDATIONStocks to buy on exaggerated share
price moves:(1) Bumi Resources - strategic divestment of non-coal assets could
be on the pipeline to raise money for Newmont stake purchase (end-March).
Market is valuing non-coal assets at zero.(2) PT Inco - special dividend likely
to be declared on 5 March EGM, up to the amount of retained earnings at
year-end 2008.(3) Property basket - this morning, housing minister Suharso
Monoarfa promises to issue revised foreign ownership law on property by
end-May, allowing a 95-year lease (versus current 25).(4) Semen Gresik -
Indonesia economic growth strong in Jan-Feb, property marketing sales already
picking-up strongly, even before a potentially more aggressive fiscal stance
and progress on toll-road construction.(5) Delta Dunia - strong investment
activities in mining space.This commentary is written by the specific trading
area referenced above and is not the product of JPMorgan's research
departments. Opinions expressed herein may differ from the opinions expressed
by other areas of JPMorgan, including research. This commentary is provided for
information only and is not intended as a recommendation or an offer or
solicitation for the purchase or sale of any security or financial instrument.
JPMorgan and its affiliates may have positions (long or short), effect
transactions or make markets in securities or financial instruments mentioned
herein (or options with respect thereto), or provide advice or loans to, or
participate in the underwriting or restructuring of the obligations of, issuers
mentioned herein. The information contained herein is as of the date and time
referenced above and JPMorgan does not undertake any obligation to update such
information. All market prices, data and other information are not warranted as
to completeness or accuracy and are subject to change without notice.
Transactions involving securities and financial instruments mentioned herein
(including futures and options) may not be suitable for all investors. Clients
should contact their salespersons at, and execute transactions through, a
JPMorgan entity qualified in their home jurisdiction unless governing law
permits otherwise.
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