China’s Stimulus Measures: Boosting Indonesia’s Nickel Market and Beyond
UOB Kay Hian, October 4, 2024
China’s recent stimulus measures have sparked significant ripples across various sectors of Indonesia’s economy, particularly in metals and mining. The policy changes have already led to a notable uptick in nickel prices, signaling potential shifts in market dynamics for key Indonesian industries. This report delves into the detailed impacts of China’s stimulus on the Indonesian market, examining the opportunities and challenges faced by different sectors, and highlighting top investment picks based on the current economic outlook.
China’s Stimulus: Lifting Market Sentiment
The Chinese government recently announced several stimulus measures aimed at revitalizing its economic growth. One key initiative includes a 0.5% reduction in the reserve requirement ratio for banks, releasing potential long-term liquidity of around RMB 1 trillion (approximately USD 142.5 billion). Alongside this, China has unveiled plans to issue special sovereign bonds worth RMB 2 trillion, aiming to inject vitality into the market.
These stimulus measures are already having an immediate impact on global markets. In Indonesia, metals and mining stocks have seen a positive reaction, particularly with nickel prices jumping by 6.8% since the announcement. Meanwhile, sectors such as coal may also benefit indirectly, although coal prices have not yet rallied. On the downside, the stimulus has the potential to affect retailers and importers in Indonesia, as they may face increased costs of goods sold (COGS) due to rising commodity prices.
Impact on Nickel Market and Metals Miners
The China stimulus has provided a boost to nickel prices, driven by expectations of higher demand for stainless steel, which is extensively used in various applications, including electric vehicles (EVs). In Indonesia, metals miners are poised to capitalize on this upward trend in nickel prices, with the stimulus potentially ushering in a period of increased profitability for the sector.
Top Indonesian Stocks Poised to Benefit
Given the shifting market dynamics, several Indonesian companies are positioned to benefit from China’s economic stimulus:
Astra International (ASII): Diversified Play with Potential Upside
Astra International (ASII) stands out as a diversified conglomerate that is expected to benefit from various aspects of China’s stimulus. With its wide-ranging business interests spanning automotive, financial services, heavy equipment, mining, and infrastructure, ASII is well-positioned to ride the wave of increased economic activity fueled by China’s measures. As nickel prices rise, Astra’s mining segment could see a boost in revenues, adding to the company’s strong performance across other sectors.
Nickel Companies (NCKL): Riding the Nickel Price Surge
The stimulus measures have directly impacted nickel companies in Indonesia, including NCKL, as prices have surged by 6.8%. Higher nickel prices bode well for NCKL’s bottom line, as the company is poised to capture increased demand from China, especially in the production of stainless steel and EV batteries. NCKL’s strong focus on efficient mining practices and strategic market positioning makes it one of the key beneficiaries in the current market scenario.
Bank Tabungan Negara (BBTN) and Bank Negara Indonesia (BBNI): Financial Sector Gains
The financial sector, particularly banks like Bank Tabungan Negara (BBTN) and Bank Negara Indonesia (BBNI), may experience positive outcomes from the China stimulus. The potential inflow of funds into Indonesia, along with rising commodity prices, can enhance lending activities and spur overall economic growth. These banks could see improved loan performance and increased profitability as the stimulus measures ripple through the economy.
Property Sector: BSDE and CTRA Set to Gain
The property sector is also likely to benefit from China’s stimulus measures. Companies like Bumi Serpong Damai (BSDE) and Ciputra Development (CTRA) may see increased demand for residential and commercial properties as Indonesia’s economy gains momentum. The positive sentiment stemming from China’s initiatives could lead to enhanced consumer confidence and spending, directly impacting the real estate market.
Retail and Consumer Goods: SIDO, CMRY, BBYB, and ACES
Retailers and consumer goods companies could experience a mixed impact. On the one hand, increased economic activity may boost consumer spending, providing a favorable environment for companies like Sido Muncul (SIDO), Cisarua Mountain Dairy (CMRY), and Ace Hardware (ACES). However, the rise in commodity prices due to China’s stimulus may also lead to higher costs of goods sold, which could impact profit margins.
Potential Risks for Retailers and Importers
While the overall impact of China’s stimulus measures appears positive for several sectors, retailers and importers in Indonesia face some downside risks. The rise in commodity prices, especially nickel, could increase COGS, potentially squeezing profit margins. Importers may need to navigate through higher costs, which could impact their competitiveness in the market.
Market Outlook: Funds Flow Back to Indonesia
With China’s stimulus measures setting the stage for increased economic activity, there is an expectation that funds could begin flowing back into Indonesia from late October 2024 onwards. This influx of capital, combined with rising commodity prices, creates an optimistic market outlook for select sectors in Indonesia.
Given the current economic climate, our top picks for the Indonesian market include Astra International (ASII), Nickel Companies (NCKL), Bank Tabungan Negara (BBTN), Bank Negara Indonesia (BBNI), Bumi Serpong Damai (BSDE), Ciputra Development (CTRA), Sido Muncul (SIDO), Cisarua Mountain Dairy (CMRY), Bank Neo Commerce (BBYB), and Ace Hardware (ACES). These companies are well-positioned to leverage the favorable conditions spurred by China’s recent stimulus measures.
In conclusion, China’s stimulus has provided a timely boost to Indonesia’s economy, particularly benefiting the metals, mining, financial, and property sectors. However, market participants should remain cautious about potential challenges, especially in the retail and import segments. The next few months will be crucial in determining the long-term effects of these policy measures on Indonesia’s economic landscape.
