Indonesia Fuel Hike

Indonesia Fuel Hike: There is rising chance that Jokowi’s government will increase fuel price in 1Q14. This is expected to accompanied by a minimum wage hike and social safety net programs. Broadly, this could temporarily put pressure on corporate profits as rising competition limits the ability to pass on cost increases to consumers. Selling pressure is expected to emerge due to concern over higher inflation and weaker near-term earnings momentum, despite medium to long term earnings outlook from diminishing fuel subsidies. The automotive sector will likely see selling pressure. On SGX, Jardine C&C has significant exposure to the Indonesian automotive demand via Astra International. Maybank-KE expects Astra International to face downside risks in corporate earnings on the back of a demand slowdown. Meanwhile, while Property stocks would not see significant immediate downside risk in corporate earnings due to carry-over presales from past years, if history is any indication, could face selling pressure too. Sinarmas Land and Gallant Venture are Indonesian property players listed on SGX.