Market Strategy, Driving Conviction, CLSA

At the beginning of the year we based our Conviction List around 3 key
investment drivers for 2012: 1) The return of FDI and competition 2)
Progress on investment & infrastructure 3) The lower cost of capital.
While the JCI has been muted our Conviction List has performed very
strongly YTD. We are OW media, infra, property & cement as they are the
beneficiaries of these tailwinds which continue to play out.


Conviction Calls are having a strong start & we remain BUYers
 Despite a dour index performance YTD, CLSA Indonesia key Conviction Calls are
having a good start to the year. We remain buyers of these stocks given the
powerful structural forces driving top-line and bottom-line growth.
 We took a more selective investment approach mapping our key picks to the key
investment drivers for Indonesia in 2012: 1) The return of FDI and competition 2)
Progress on investment & infrastructure 3) The lower cost of capital
 To this end we are overweight media, cement, property and infrastructure.

Driver 1: The return of FDI and competition
 Indonesia’s growth prospects, its young and burgeoning middle class have been the
key drivers for the surge in FDI over the past few years.
 The economic multiplier effects from this FDI are powerful and it will bring greater
competition to incumbents who have been enjoying above average returns.
 The key ways to play this driver is via Media & Industrial Property. Our stock picks
here are MNCN and SSIA.

Driver 2: Progress on investment & infrastructure
 After years of under-investment there is a renaissance in investment & infra.
 Following the long-awaited Land Clearance Law we expect the next piece in the
puzzle – the Implementation Regulation to be passed by the 1H12.
 Such developments bring us closer to the build out of hard infrastructure after
years of disappointment.
 The key ways to play this driver is via Infrastructure, Cement & Property. Our stock
picks here are JSMR, INTP, BSDE, TBIG and AKRA.

Driver 3: The lower cost of capital
 Indonesia’s cost of capital & thus the risk premium has come down dramatically.
 This is a universal positive for Indonesia more broadly but more so for
infrastructure companies whose return profile is based off the cost of capital.
 The key ways to play this driver is via toll-roads & telecom tower operators. Our
stock picks here are JSMR, TBIG.

Download file : Indonesia Market 200312