Indonesian President Joko Widodo pledged to lift spending to a record next year as he sought to cushion the impact of an intensifying global trade war from further weakening growth in Southeast Asia’s largest economy.
Jokowi, as Widodo is commonly known, set government spending at 2,528.8 trillion rupiah ($178 billion) in 2020, while unveiling a raft of measures to boost consumption and investment. In his annual budget speech to the parliament, the president who will start his second five-year term in October, projected an economic growth rate of 5.3% next year, the highest since 2013.
“The government believes that investment will continue to flow into the country because of the positive perception about Indonesia and the improvement in the investment climate,” Jokowi said.
Here are some winners and losers from the budget plan:
With the government focusing on boosting domestic consumption by putting more money into the pockets of consumers, be it through direct cash handouts or subsidy for power and fuel, the companies selling everything from shampoos to mobile phones and noodles are seen as winners. Stocks to watch out in this space include PT Unilever Indonesia, PT Mayora Indah, PT Indofood CBP Sukses Makmur, PT Indofood Sukses Makmur, PT Mitra Adiperkasa and retailers such as PT Ramayana Lestari Sentosa , PT Matahari Department Store, PT Ace Hardware Indonesia and PT Sumber Alfaria Trijaya.
After Jokowi vowed to double down on his massive infrastructure drive, construction companies are set to win more contracts to build everything from toll roads to airports, dams and develop tourist spots. The Jakarta Construction, Property, and Real Estate Index rallied 1.9% on Friday, gaining for a third day. Top construction companies and toll-road operators to watch out for include PT Waskita Karya, PT Adhi Karya, PT Wijaya Karya, PT PP and PT Jasa Marga.
The budget allocation for healthcare was set at a record 132.2 trillion rupiah, almost double the spending of 69.3 trillion rupiah in 2015. That’s certainly going to benefit drugmakers from PT Kalbe Farma, PT Tempo Scan Pacific and PT Kimia Farma. With the allocation for the national healthcare system being raised, hospitals such as PT Siloam International Hospitals, PT Medikaloka Hermina and PT Mitra Keluarga Karyasehat are seen as winners.
With the government struggling to meet its revenue target this year, increasing excise levy on tobacco is always seen as an easy option to bolster tax collection. The industry was spared of any higher tax last year. Excise duty collection next year will increase to 179.3 trillion rupiah from 165.8 trillion rupiah this year, according to the budget proposal.
Watch top cigarette makers such as PT Hanjaya Mandala Sampoerna, PT Gudang Garam and PT Bentoel Internasional Investama and unlisted PT Djarum. But higher cigarette prices are more likely as companies seek to pass on the costs to smokers to protect their profit margin.
As the government seeks to boost investment in infrastructure and factories to negate the impact of headwinds arising from a prolonged U.S.-China trade war, banks will be looking to tap into demand for financing capital-intensive projects. An easing cycle at its start will also help lenders log an average loan growth of about 10% at the largest banks including PT Bank Central Asia, PT Bank Mandiri, PT Bank Rakyat Indonesia and PT Bank Negara Indonesia.
With the prices of palm oil and rubber languishing due to lackluster demand and a supply glut, government’s efforts to boost biodiesel consumption and domestic use of rubber, will be welcomed by investors. An index of agriculture companies is headed for a third straight year of declines and is the second-worst performer among the nine sectors in Indonesia this year.