Equities: Global equities gain on strong consumer spending and earnings
Global equities clocked another winning week. Global equities saw gains last week, fuelled by strong US consumer spending, lower-than-expected initial jobless claims, and a strong start to the earnings season. The S&P 500 advance was led by utilities and real estate, signalling a broadening of the market rally. The NASDAQ rebounded late in the week, driven by strong earnings from TSMC, which renewed excitement for AI-related stocks. Meanwhile, September’s increase in consumer spending bolstered growth expectations, while industrial output faced headwinds, such as Hurricanes Francene and Helens and labour strikes. Despite these, initial jobless claims fell unexpectedly during the second week of October, signalling a resilient labour market. The S&P 500 and NASDAQ were up 0.9% and 0.8% respectively.
Meanwhile in Asia, Japan equities declined as a lower-than-expected domestic inflation in September sparked speculation that the BOJ may delay further rate hikes; the Nikkei-225 fell 1.6% for the week. In China, equities rose as the central bank unveiled more support measures with the SHCOMP and CSI 300 rising 1.4% and 1.0% respectively.
Topic in focus: Indonesia equities – A beneficiary of Fed cuts. We maintain an optimistic long-term outlook for the Indonesia market, underpinned by Fed cuts and a weaker USD. This will drive the widening of the spread on interest rates which will benefit emerging markets like Indonesia and enhance the appeal of rupiah. We forecast the rupiah to strengthen, dipping below the 15,000 level in 2025. Furthermore, with the Fed’s more dovish stance and the larger-than-expected cut, foreign and domestic liquidity flows should continue to support Jakarta Composite Index (JCI) towards higher levels. Against this backdrop, we have a preference towards large-cap stocks with positive earnings prospects that are well-positioned to benefit from government spending and further rate cuts.
Indonesian banks are poised to benefit. Indonesia’s banks have continued to demonstrate robust loan growth and are on track to meet its 9-10% growth target for the year. Although liquidity pressures remain tight for larger banks, the central bank's dovish stance is expected to ease funding costs by late 2024 or 2025. While asset quality is stable overall, the micro-segment faces rising non-performing loans (NPLs). Within the banking sector, we prefer banks with robust loan growth and high liquidity as they are poised to capitalise on the favourable interest rate environment as we head into 2025.
Figure 1: Widening interest rate differential
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