Politics will play a very critical role in 2018. Our base case expectation is that unrest will be lower than previous election years and we will see an election participated by the main parties. However, close observation of the developments is warranted.
Market has performed very well in 2017, driven in particular by financials and large caps. Financials are now trading at a P/B of 1.52x which is a 6 year high. Non-financials trade at a P/E of 23.4x (Using 2017 annualized EPS) which is in line with the last few years.
For 2018, market will come under pressure as various macro pressures are emerging. Firstly, interest rates are going up due to a change in the liquidity conditions in the banking sector. Secondly, currency is weakening and this trend will persist in 2018 as the country is experiencing BOP deficit (Oil price is also increasing). Finally, the health of the banking system is getting worse with some banks now unable to pay back depositors.
Please refer to the attached report for detailed findings.
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