Indonesia corporates relatively shielded from the FED

JAKARTA - After years of complacency, emerging markets seem to have finally become scared of the FED, and Indonesia is no exception, says the French banking group Natixis in a research note. “(But) while the situation may look worrisome, we argue that the problem should not be overestimated,” the note says.

“First and foremost, Indonesia’s fundamentals are better today than back in 2013 during the tapering scare. Second, Indonesia is not very leveraged and the share of foreign currency denominated debt to total public debt has declined.

“Third, excessive rupiah weakness usually does not sustain if the central bank shows decisive action and allowed market forces to dictate the bottom, which is shown in recent moves made by the Bank Indonesia.

“Beyond the small macroeconomic imbalances, Indonesian firms are in a relatively good financial health, at least on average.

“For debt, Indonesian corporates are generally less leveraged than their global peers and also on a deleveraging trend.

“On the revenue side, the operating income of Indonesian corporates has been growing at the quickest pace among ASEAN peers. In that regard, even though the repayment ability of Indonesian corporates is not as good as that of other corporates in ASEAN, they have experienced the most relevant improvement in the last two years.

“Another positive is Indonesian corporates’ increased and high return on capital both comparing to ASEAN and global average.

“Overall, the sectors with the most improvement are energy (lower leverage, higher repayment ability and better income) and consumer (higher capex and ROC). Another important sector, namely materials and metals, has also improved but the leverage has remained flat.

    www.natixis.com   (ATI).