________________________________
All eyes
on possible oil price hike
In the market
that lacks short-term clear direction, the
best-performing
stocks this week
were the ones that were down the most in the past few
weeks. JCI was
relatively unchanged (-0.4%) in the past week as the
market continued
to await the government’s decision on oil-price hike.
SMRA (+12.7%),
AUTO (+6.6%) and TRUB (+6.1%) were the best
performers. On
the flip side, FREN (-10.3%), MAPI (-7.1%) and UNSP
(-6.9%) were the
worst-performing stocks.
Fuel price hike plan –
inevitable short-term pain
Amid soaring oil price and mounting
concerns over fiscal sustainability,
the
government appears to be warming up, albeit rather reluctantly,
to
the
possibility of a fuel price hike. A local paper reported that
the
government is mulling raising the
price of subsidized regular gasoline on
1
June by 33% to IDR6,000/litre while the price of diesel will
be
increased by 28% to
IDR5,500/litre.
If
implemented, the government expects to save IDR26t (USD2.8b),
of
which about IDR14.5t (USD1.6b) would
be given directly to the poor.
The
government expects to reduce its budget deficit to 1.9% of
GDP
from the current budget estimate of
2.1%. Without the fuel price hike, the
government estimates the deficit to
widen to 2.5% of the GDP. Inflation
is
expected to rise to 11.1% from the current budget assumption
of
6.5%.
Please see overleaf for details of
the impact based on the government’s
simulation.
Positive for the market in
the medium and long terms
While we maintain our UNDERWEIGHT
call on Indonesia at this
juncture, we are positive on the
market’s medium- to long-term outlook.
We
believe the possibility of the fuel price hike has partly been priced
in
by
the market. While there will be a short-term pressures on
corporate
earnings, we believe the impact will
be considerably milder than in 2005
when the government raised the fuel
price twice by 29% in February,
and
126% on 1 October as the companies have been paying market
prices for industrial
fuel.
In
2005, Jakarta Composite Index (JCI) plunged 17% in August alone
as
the
market became increasingly jittery as the government appeared
to
be
dragging its foot on a decision to raise fuel price. However, the
JCI
was
down just 1.2% one month post the October hike and posted a
decent 7.8% return in the ensuing
three months.
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