Macro Strategy: January Effect Risks

Stock Code	Last Price	Change	Change %
DSSA	70,475	1,950	2.85%
TCPI	11,950	400	3.46%
YPAS	1,390	235	20.35%
AADI	10,850	225	2.12%
ALKA	905	180	24.83%
MSIN	835	165	24.63%
IFSH	1,900	150	8.57%
MLBI	5,650	125	2.26%

Macro Strategy

January Effect Risks

The market’s increased vulnerability to correction on Fed’s hawkish comments would present favorable tactical buying opportunity.
Fed voting member rotation leads to a more balance stature in 2024 as indicated by the recent Bloomberg Fed spectrometer.
Government fiscal stability persists with a deficit below target in 2023. Frontloading of spending for the 2024 elections is underway.

Increasing Susceptibility. Given the recent fluctuations in the market, there is a noticeable increase in skepticism regarding the expected path of interest rate cuts in 2024. Lately, several members of the Federal Open Market Committee (FOMC) have conveyed their hesitancy in prematurely claiming victory in the fight against inflation and in refraining from forming opinions ahead of meetings. In our view, such a cautious approach is crucial to the Fed's strategy aimed at moderating market expectations, particularly in the wake of robust asset performance that resulted in the 10-year UST yield dropping below 4%. More assertive Fed’s stance and statement in the upcoming FOMC meeting has the potential to expose the market to currency risk. Given the recent robust performance of the market since the mid 4Q23, marked by substantial foreign inflows, a vulnerable IDR could heighten the risk of a correction. In this context, there would be a strategic opportunity to establish positions in anticipation of rate cut in 2H24.

More Balance Stature. With the annual rotation of Fed voting members, the stance appears to be balanced as seen in Bloomberg’s recent Fed spectrometer which assesses the policy inclinations of each FOMC member, revealing varying degrees of hawkishness or dovishness (Exhibit 9 for details). While the overall score of the policymakers (12 in total) implies a more balanced tone in 2024 (vs Sept 23’s more hawkish stance), risk remains on market expectations that are still skewed toward a more aggressive stance than the Fed’s, both in terms of the timeline and the extent of the reduction in rates. We anticipate that the Fed will protract its more measured signaling in the Jan FOMC meeting which will lead to a potential market adjustment and hence heightened volatility.

Fiscal Stability Persists. The government's 2023 fiscal performance ended with a deficit of IDR 347.6 tn, resulting in a Fiscal Deficit/GDP ratio of 1.65%, below the targeted 2.3%. The lower deficit was primarily supported by robust revenue collection rather than reduced spending, despite a notable increase in spending activity occurring in the final days of December. Total revenue of IDR 2,774.3tn was 105.2% of the target, while spending reached IDR 3,121.9 tn, meeting the target. Stronger revenue was mostly from tax collection, with robust growth evident across most tax categories: Domestic VAT (PPN DN): +22.1% y-y, Corporate Tax: +20.3%, and Personal Income Tax (PPh 21): + 15.5%. Despite a notable moderation in key commodity prices, non-tax revenue surpassed the target by 17.5%, driven by higher coal royalties, surge in SOE dividends, and public service revenues.

In early 2024, the Finance Ministry stressed the frontloading of the 2024 budget, partly on the budget for the upcoming elections. Tax revenue will remain the fiscal backbone in 2024 with total projected tax revenue expected to grow by 7.7% to IDR 2,309.9 tn. Recent measures include an average 10% hike in excise taxes on cigarettes and a 15% tax imposed on e-cigarettes. The government aims to generate IDR 4.5tn from a tax on packaged sugary drinks.

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