Equity Strategy

A Relative Safe Haven Amid Trade War, But Growth Remains a Risk

• We believe Indonesia’s stronger fundamentals should help weather the trade war, though the risk remains on IDR volatility and slowing growth.
• The consumer sector is vulnerable to weaker IDR, but the 2018 experience showed companies' ability to sustain margins.
• We continue to see the JCI to trade at a range of 5.9-6.7k and advise investors to stick with the defensive names.

Well-positioned vs. peers amidst trade war, though growth is a concern.

Compared to its EM peers, we believe Indonesia is relatively well-positioned to weather the trade war, given the economy’s lesser reliance on exports, which account for only 22% of GDP. While in 2018 IDR, equity, and bonds experienced corrections, we see stronger fundamentals this time from a stronger CAD (0.6% in 2024 vs. 2.9% in 2018), while the external debt-to-GDP ratio remains one of the lowest (at 29% of GDP), with only 30% of it in USD. We think these could prevent the bond yield from widening like in 2018. However, this time around, the main concern is the risk of slowing economic growth, amid a lack of growth catalysts in 2Q25 onwards.

Sectoral view: a more resilient profile

Based on our team’s view (please refer to sectoral views on p.2), we see the direct impact of recent Trump tariffs on the sectors under our coverage to be limited, with more direct exposure in the commodities and energy-related sectors (due to a potential slowdown in demand). Meanwhile, although the consumers sector is exposed to IDR weakness risk, the experience in 2018 showed that companies were able to sustain margins.

Consumers: Rupiah risk impact was well managed

Between 2017 and 2019, revenue growth in the consumer sector was supported by social protection programs and increases in the minimum wage. Despite the IDR fluctuations, the consumer sector demonstrated the ability to pass on higher costs resulting from the weaker Rupiah, as reflected in the gradual improvement in gross margins. In addition, lower input prices also supported the sector’s profitability. In 2025, however, the risk is that weak purchasing power may limit the ability to pass on higher costs.

Commodities: price risk from possible lower demand

Drawing from the 2018 trade war as a reference, metal prices such as copper, nickel, and gold proved relatively resilient, declining only by -5%/-7%/-1%, respectively. In contrast, the recent pullbacks of -21%/-11%/-7% suggest a more pronounced market reaction this time around. We believe the sharper impact is due to the swift reciprocal tariffs from China in response to the U.S. hikes, intensifying concerns over demand destruction. Moreover, this round of tariffs had been widely anticipated, prompting industry players to front-load inventories ahead of the announcement. As a result, a steeper correction occurred after the U.S. released its exemption list the following day.

Staying defensive

We continue to see JCI to trade at a range of 5.9-6.7k, based on historical earnings yield spread of 100-240bps (please see our previous Strategy report), and see the main risk for the market from IDR volatility and the widening of bond yields. We believe the market’s valuation is cheap at 11.4x (-1.8SD vs. 5-year mean), though the tariff tension may drive a heightened risk premium to persist. Foreign’s ownership has declined to 17%, though it remains above the 2020–21 bottom of 12.5%. We continue to advise investors to stick with the defensive and quality names: BBCA, ICBP, GOTO, BRIS, NCKL.

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