Is Indonesia's inflation going the way of India? ::Credit Suisse,

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● While the YoY inflation rate in Indonesia decelerated to 4.6% in
July (favourable base effects), Figure 1 highlights that monthly
CPI momentum is picking up (+0.6% in June and +0.7% in July).
While monthly data can be volatile, we believe it is a more
accurate reflection of underlying inflation trends. And for investors
looking at YoY inflation, we do note that August is the last month
for favourable base effects.
● Indonesia received 77% of foreign investor inflows versus 7%
MSCI weight. Figure 3 highlights that YTD net foreign buying in
Indonesia is US$2.66 bn or 77% of the total net foreign buying in
Emerging Asia ex-China of US$3.47 bn. This compares with
Indonesia’s MSCI weighting of 7% in Emerging Asia ex-China. For
2011 YTD, Indonesia has now seen more net foreign buying than
India’s US$2.32 bn.
● We downgraded Indonesia from Overweight to UNDERWEIGHT
on 1 August. While Indonesia is the best structural ROE story
within GEM (see our report of 28 July 2010 Indonesia versus
BRICs), we believe valuations (47% premium to GEM, highest
ever for Indonesia) coupled with monthly momentum in inflation
picking up and “crowdedness” warrants an UNDERWEIGHT call.


While the YoY inflation rate in Indonesia decelerated to 4.6% in July
(favourable base effects), Figure 1 highlights that monthly CPI
momentum is picking up (+0.6% in June and +0.7% in July). While
monthly data can be volatile, we believe it is a more accurate
reflection of underlying inflation trends. And for investors looking at
YoY inflation, we do note that August is the last month for favourable
base effects.


Indonesia received 77% of foreign investor inflows versus 7% MSCI
weight. Figure 3 highlights that YTD net foreign buying in Indonesia is
US$2.66 bn or 77% of the total net foreign buying in Emerging Asia
ex-China of US$3.47 bn. This compares with Indonesia’s MSCI
weighting of 7% in Emerging Asia ex-China. For 2011 YTD, Indonesia
has now seen more net foreign buying than India’s US$2.32 bn.


We downgraded Indonesia from Overweight to UNDERWEIGHT on 1
August. While Indonesia is the best structural ROE story within GEM
(see our report of 28 July 2010 Indonesia versus BRICs), we believe
valuations (47% premium to GEM, highest ever for Indonesia) coupled
with monthly momentum in inflation picking up and “crowdedness”
warrants an UNDERWEIGHT call.