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xcluding the year 2000 (due to the dot.com debacle), December'€™s month-on-month (m-m) performance of 0.4 percent increase (+17.7 points) was the worst on record for the past 13 years. This resulted in the index declining 1 percent year-on-year (y-y) to close at 4,274, the third-worst annual performance in the past 13 years (2001 index: -5.8 percent; 2008: -51 percent), close to our expectation of 4,300, as the 2013 market'€™s earnings per share (EPS) contracted 1.7 percent y-y based on our estimate.

In terms of regional performance, the Jakarta Composite Index (JCI) was the third worst in absolute terms (figure 1), but was by far the worst in dollar terms, as the rupiah plunged more than 26 percent against the US dollar (figure 2). The three worst performing stocks within our coverage were Erajaya Swasembada (ERAA), which fell 66 percent in 2013, and coal miners Harum Energy (HRUM) down 54 percent and Bumi Resources (BUMI) down 49 percent. At the other end of the spectrum, the best three performing stocks were Matahari Department Store (LPPF), which gained 307 percent, Citra Marga Nusaphala Persada (CMNP), which rose 99 percent and Express Transindo Utama (TAXI), which rose 68 percent.

In terms of 2013 average turnover, daily transactions reached Rp 4.9 trillion (US$470 million) versus Rp 3.6 trillion ($385 million) in 2012, up 37 percent y-y on a rupiah basis and up 22 percent in terms of US dollars, helped in part by 35 minutes of additional trading. In 2014, volume support for the market should stem from changes in trading units allowing retailers to invest with less capital, although alterations in price fractions (from five to three groupings) could result in lower daily trading turnover.

The market last year was also not kind to initial public offerings (IPOs). The 30 IPOs in 2013 raised Rp 16.7 trillion, providing only a 3 percent return on average, excluding Sarana Meditama Metropolitan (SAME).

Including SAME'€™s 525 percent return, the average return would improve to 20 percent. Average fundraising was just Rp 557 billion, translating into an average market cap of $177 million, assuming a 30 percent average free float, suggesting relatively small IPOs.

Going into 2014, there are already four companies planning to list in January, potentially raising Rp 751 billion.

However, given the current weak market conditions and uncertainties leading up to the 2014 election, we expect most IPOs to take place in the second half of the year.

So far this year, the market has remained weak, down 1.7 percent year-to-date (ytd) to 4,201, in line with US markets on profit-taking following year-end window dressing. Against such a backdrop, we continue to recommend defensive local exposure as a shield against internal and external volatility.

In 2014, we are positive mostly on stocks that should benefit from election spending, such as telecoms and consumer staples (not consumer discretionary, which should suffer from expected lower 2014 gross domestic product growth).

As we expect more than 15 percent y-y market EPS growth in 2014, we look for index performance to go from '€œdarkest'€ at present to '€œdawn'€, reaching 5,000. We believe the index will be supported by a decreased current-account deficit to 2.6 percent (2013: 3.4 percent), an improved rupiah-US dollar exchange rate to 11,300, and resilient domestic consumption (GDP growth of 5.2 percent, still one of the highest globally) and political optimism in the lead-up to the elections.