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What to Expect on Q3

As September is coming to a close, Q3 earnings and economic report will be post in the coming weeks. What to expect on Q3? After one month staying in Indonesia while waiting for my visa, I've watched the news almost every morning, and keeping up with the current market condition.

The appointed president Joko Widodo and appointed vice president Jusuf Kalla will be inaugurate next month and they have created 34 ministries where 18 will be an independent (non-political party) professional, and 16 will be professional from political party. This event can be view as historical because this is the first time that the majority of the ministries are from non-political party, and are professionals in their role. (you may read the detail here)
Jokowi-JK during the announcement of 34 ministries
Aside from politics, the most awaited event during Q3 is the result of Indonesian Current Account Balance where last quarter was deficit by USD 300mio. Based on my intuition, Q3 will be slightly better than Q2 because the government have tighten the distribution of subsidy petrol around Indonesia, it resulted a long line at many gas stations around major city in Indonesia. The government also planning to stop the subsidy of petrol to decrease the national spending.

The termination of subsidy petrol may result negatively in the short run, but positive in the long run. The short run impact is that Indonesia will have a higher inflation rate than the annual average of 6-7%. This will cause an increasing price on consumption goods, food products, transportation and almost everything else since petrol is the fundamental energy being used in every business. In the long run, the economy will be more steady, and account balance will be leaning towards positive rather than negative - obviously this is a good news.

The financial market will be distress during the short run due to a possibility of high inflation and increasing prices in consumer goods and other products as well, in contrast it will be more prosperous in the long run, much more steady economic growth.

Sector YTD growth have been dominated by property, with 83.3% YTD growth, followed by the finance sector and infrastructure.
In the long run, investors should focus on agricultural sector because Jokowi promised to focus more on agricultural sector for Indonesia, to develop it and grow it bigger, while keeping the small people in mind. In the short run, with all the development of MRT and monorail trains in Jakarta and many development on toll roads around major cities in Indonesia, infrastructure will increase more after Q3, perhaps nearing to 30-32% by the end of the year. Finance sector will perhaps increase after the implementation of Asian Economic Community - free trade agreement for the south east Asia region - because more investment from South East Asia country will eventually enter the Indonesian market, and Indonesian banks and financing services will have more competitive rate. 

On Q3, all eyes will be on Account balance and oil import! If export can balance import on Q3 GDP will slightly increase and market will expand. And all eyes on the termination on subsidy petrol, of course regardless if GDP increase, but if the government terminate the subsidy on petrol, all hell break lose, this will bring fear into the market.

Cheers,
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