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November 7th, 2019
​⏰ 2 minute read
Real?
‪Economists & politicians live the the ‘real’ economy. But the rest of us live in the nominal world. If you buy something that’s nominal & if you sell something you receive nominal money. Economists measure this... & then adjust it to get what they like to call ’real’ GDP. At Sharpfokus, we always use nominal.‬...

GDP
$
‪Talking of which the 3Q economic report came out very promptly this week. Last week we made a prediction about the $ growth based on our prediction for nominal rupiah GDP. The number was slightly less than we expected, but we still ended up with a pretty great 11% GDP growth in $s from last year. Using the last 4 quarters, the Indonesian economy is now worth $1.1tn.‬

Nominal
‪It seems like a lot of people are quite surprised that the ’real’ GDP grew 5% again. Nominal GDP grew by 6%, slightly less than the 7% we expected & is the slowest growth this decade. In 2010 we were growing at 15%. This means the deflator which economists use to get real GDP was less than 1% compared to inflation which is 3%! If you use inflation instead you’d get les than 3% real growth.‬

Lag
‪But don’t worry about this. We’ve already known for a while that there’s been a slowdown. The GDP numbers have lagged behind & are only now catching up. This is the end of the slowdown not the beginning. The order of lead to lag for us is $ GDP comes first as the rupiah is so important, then companies sales, then GDP. As $ GDP is now growing very fast again, the others will soon follow, up!‬

Sales
Pattern
‪We see clear signs that the corporate world is already starting to catch up with $ growth. As GDP is sales, we use the sales of the 61 stocks we cover to measure this. The pattern of sales growth for all the stocks is remarkably similar & is exactly the same pattern as $ GDP. Sales growth was close to 0 in early 2016, jumped to 20% in 2017 & early 2018 before falling back towards 0 into early 2019.‬

3%
‪The pattern has sales growth staying consistently high close to 20% during 2017 & the first half of 2018 before slowing down dramatically to 5.5% by the end of last year & a low of just 2.8% in the second quarter of 2019. Then suddenly in the 3rd quarter sales have jumped 12% from the 2Q & 4.4% from a year ago.‬

Forecast
It’s true that the 3Q would normally be seasonally higher than the 2Q, but we can see the improvement in other ways too. In the 2Q 24 companies had negative sales growth from a year ago & this has improved to 16 in the 3Q. We are forecasting much faster sales growth ahead as we see both higher volumes & prices. That’s faster nominal (or for us real) growth.‬

Cash flow
Negative
‪The other thing for us which is more ‘real’ than what’s supposed to be real is cash flow compared to profits. It’s cash flow which is real & that’s why we only focus on cash flow. Cash flow is what’s important for investors too. If it’s negative then investors have to pay money if it’s positive investors can get paid money. With the slowdown in sales growt, cash flow became very negative.‬

3Q
‪Cash flow for the companies we cover became negative at the end of last year & plunged to reach a combined negative 21 trillion rupiah for the first & second quarters. But partly with the recovery in sales in the 3rd quarter, the six months cash flow for the 2nd & 3rd quarters combined has improved to just minus 1 trillion rupiah. This means the 3Q is back to plus.‬

Working
‪We’ve seen some big turnarounds, not only because of the sales growth, but more importantly because of the unwinding of negative working capital. As we said before, the negative cash flow would always quickly unwind because it came from shorter term...working capital. This is exactly what’s happening & this effect will get stronger still in the 4Q.‬

17k
‪Positive cash flow means money for investors again & this is gong to drive our stock market up to new record highs in the next few months. How high? Let’s go back to the nominal GDP. It may be growing only 6% but the stock market is so far behind it doesn’t matter. Using our base year of 1996, to catch up with GDP as of 3Q the JCI should be at 17,027. No that’s not a typo...‬
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