Jakarta. Global investment bank Morgan Stanley sees the Indonesian stocks still have room to gain next year on the back of an imminent economic recovery and the distribution of the Covid-19 vaccine, following an impressive rally in the past seven months.
The Jakarta Composite Index (JCI) was likely to reach 6,300 next year, or 13 percent above its closing price on Wednesday, Morgan Stanley's equity strategist said.
"We formally equal weight [on indonesia] in terms of relative recommendations across Asia and emerging markets," Daniel Blake, Asia and emerging market equity strategist at Morgan Stanley, said in a webinar on Wednesday.
"The key reason why we were not quite at an overweight rating was that it had been quite an outperforming market, leading into our outlook publication this week," Blake said.
"Its relative strength index is somewhat stretched against the overall picture," he said.
JCI has been rallying by 41 percent since its lowest point since 2012 in April but has yet to return to its highest level of 6,660, recorded in February 2018.
The Indonesian companies swelling valuation relative to other emerging markets kept Morgan Stanley from being all-out bullish on Indonesia.
"Also, we still have some catching up to go when we look at the fundamentals, including relative net margin and asset turnover," Blake said.
The investment bank ranked Indonesia on 8th among the Asia Pacific and 30 emerging markets that it assessed, just outside the overweight group, including China, India, Brazil, Hong Kong, Australia, Korea, and Greece.
Still, the investment bank held "quite a constructive view of Indonesia," according to Blake.
Morgan Stanley projected the largest economy in Southeast Asia to grow by 6.2 percent this year, rebounding from an estimated 1.7 percent contraction this year. Indonesia has not seen an annual growth above 6 percent since 2012.
Liquidities have been easing in Indonesia, and that helped lift off the pressure on the country's households that have been generally in savings deficit, Blake said.
Indonesia's historically higher beta also helped with the country's positive equity market outlook during the return of global risk appetite, Blake said.
Morgan Stanley recommended consumer staples as its top pick for Indonesia. The country's consumer staples sector ranked fifth in the investment bank's emerging market allocation recommendation, below India's information technology, China's consumer discretionary, South Africa's materials, and India's industrials sectors.