JPMorgan upgrades Indonesian stocks to 'neutral' after row

Mon Jan 16, 2017 5:40am EST
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By Gayatri Suroyo and Hidayat Setiaji

JAKARTA (Reuters) - JPMorgan Chase & Co (JPM.N: Quote) upgraded its investment recommendation on Indonesian stocks to "neutral" from "underweight" on Monday, partially reversing a move it made in November that upset the government.

Indonesia cut its business ties with JPMorgan after the U.S. investment bank downgraded its recommendation on Indonesian stocks to "underweight" from "overweight" in a research report issued after the U.S. presidential election.

Government officials said JPMorgan's November report "did not make sense" because it gave better recommendations for equities of other emerging economies that Indonesia argued were not doing better than its economy, Southeast Asia's largest.

JPMorgan's equities research team wrote on Monday that in the month after Donald Trump's surprise victory, funds sold large amount of emerging markets' bonds and equities which it estimated at $15 billion each.

"Redemption and bond volatility risks have now played out, in our view. Bond volatility should now decay allowing us to partially reverse November's tactical moves including upgrading Indonesia to neutral," according to the note sent to clients and seen by Reuters.

"Indonesia's macro fundamentals are strong, with high potential growth rate and low debt/GDP with economic reform. Within Asia it was the biggest beneficiary of bond inflows," the bank said, adding that better motorcycle sales data also supported its upgrade.

JPMorgan said it remained concerned about volatility in the first half of 2017 and "manages risk with a neutral call".

When asked about JPMorgan's upgrade, Indonesia's Finance Minister Sri Mulyani Indrawati said "it's good", without elaborating.   Continued...

The logo of Dow Jones Industrial Average stock market index listed company JPMorgan Chase (JPM) is seen in Los Angeles, California, United States, in this October 12, 2010 file photo. JPMorgan Chase & Co. owns Chase Commerical Bank and JPMorgan Investment Bank.  REUTERS/Lucy Nicholson/File Photo