Indonesian Strategy:Better budget times ahead

The Preliminary FY16 realised budget numbers show a seasonal pickup ingovernment expenditure in 4Q16 but at a much lower growth pace than prioryears (4Q16 spending up +1.2% y/y). There is much less fiscal risk for theFY17 budget in our view vs FY16, which featured outsized 1H16 spending ona heightened run-rate fiscal deficit.

We reiterate our preference for domestic quality cyclicals through a modelportfolio of select banks, retailers and property names alongside tacticalexposure to commodity plays. Our model portfolio delivered 2.7pptoutperformance against the MSCI Indonesia during Dec 2016.