NEWS

Entering 2017, the direction of the Indonesian stock market is still unable to move. This is reflected in the movement of the Composite Stock Price Index (CSPI) which tends to move limited.

During January-February 2017, JCI was only able to record a return of 1.7%. This result is lower than the same period last year of 3.87%.

Not only that, foreign investors who are usually the 'leaders' in the direction of the JCI, along with a sizable portion of their ownership of the Indonesian stock market capitalization still recorded a net sell of Rp 1.6 trillion.

This condition is inversely proportional to the same period last year which was able to record a net buy of Rp 1.5 trillion.

With this condition, the CSPI performance so far is still relatively behind compared to indexes in other Asian regions, such as the Indian stock exchange (7.95%), Philippine stock exchange (5.43%), Malaysian stock exchange (3.17% ), the South Korean stock exchange (3.22%), the Taiwan stock exchange (5.37%), the stock exchange (4.45%), and the Hong Kong stock exchange (7.91%).

A battle of two camps

With the condition of the JCI like this, questions will always arise among market participants, especially those who are active in transactions, namely whether the JCI can continue to continue its upward trend to 5800-6100 until the end of this year as predicted by a number of forecasts analyst and investment manager earlier this year?

Or conversely, will the JCI move anomalously below the 5296 level, where this level is the best level achieved in 2016?

Of course, it's not easy to answer. However, the movement of the stock market is strongly influenced by many variables, such as the macroeconomic conditions that occur (external and internal), the performance of the issuer, the structure of the stock market itself, existing regulations, financial and non-financial performance of the company (issuer), political and security conditions , the depth of the stock market, to the investor structure and psychological investor.

All of these variables will overlap, thus creating a 'battle' between the optimistic (bullish) camps and the pessimistic camps (bearish).

When the optimistic camp dominates more transactions, the CSPI will tend to strengthen. And, conversely, when the pessimistic camp dominates, the JCI will tend to weaken.

Well, one of the variables currently in the spotlight of the two camps is related to the direction of the monetary policy of the US central bank (The Fed). It is common knowledge that every policy taken by the Fed will provide for the movement of stock indexes in various world stock exchanges, including Indonesia.

Considering the wisdom of the Fed's policy, every gesture and tone of the words of the Governor of the Fed will be taken seriously by investors and authorities in various parts of the world. Because it is a signal to make decisions.

Some of the policies of the Fed in the past that able to have an impact on the stock market, such as when the Fed launched a Quantitative Easing (QE) policy three times (2008-2014) which showed the existence of large liquidity flows which became fuel that encouraged the soaring stock market in various regions, especially in emerging regions which at this time are still able to grow relatively strong. In fact, at that time a number of exchanges indicated experiencing a bubble, because it was not supported by a solid fundament.

Conversely, when the Fed launched the Operations Twist policy (2012), Tapering Off (2014), and the increase in the benchmark interest rate (Federal Funds Rate / FFR) at the end of 2015 and 2016, and the election of Donald Trump as the 45th US President has been impacted the depressed stock market, especially in emerging regions.

Even so, it is not always the picture as above always happens. Anomalies can occur in the stock market. In fact, these anomalies have become very interesting empirical studies to be discussed.

In fact, the emergence of this anomaly has given rise to new branches of science from the field of finance, where one of them is behavioral finance.

One anomaly from the stock market that occurred last week, when the Fed finally raised the FFR by 25 bps to 0.75% -1%.

If twice the previous increase in world stock exchanges tend to be depressed, including CSPI. So, in raising the FFR last week, the world stock exchanges, especially the CSPI, actually strengthened. In fact, CSPI is able to penetrate the highest level in the history of the Indonesian stock market.

A number of analyzes state that the increase cannot be released that the Fed's decision has indeed been priced in by the market, where the Fed is expected to raise FFR three times throughout 2017, in line with US macroeconomic conditions that continue to improve and will be even more expansive under the Donald Trump government.

Although the Fed's decision has triggered anomalous conditions in the Indonesian stock market, market participants must be demanded to be vigilant. However, JCI's current position is quite vulnerable to correction.

In fact, it could again be depressed, like in 2015, when the JCI was able to break the highest level, but in the next few months experienced a great correction.

Why is vigilance done? This cannot be separated from the condition of the world economy that has not yet recovered equally. The European economy still has a number of problems.

The Asian economy is also still depressed, especially the Chinese economy which keeps a 'time bomb' in the form of huge debts that could explode at any time.

Moreover, the Chinese government sometimes often does not communicate with the market, causing unexpected uncertainty.

This condition happened in August 2015, at which time the Chinese monetary authority (People of Bank China / PBC) which suddenly devalued the yuan exchange rate. The policy has triggered a great turmoil on the Indonesian stock exchange, including the Indonesian stock exchange which at that time was experiencing great pressure.

Back to Fundamental

Considering that external variables are out of control and volatility is an inherent part of the stock market itself, this is where it is necessary to return to fundamentals.

As Warren Buffet's value investor advice, "in the short term the stock market is like a voting machine, but in the long run like a scale. In other words, investing in the stock market should be carried out in the long-term horizon while remaining linked to the fund.

And it must be recognized that Indonesia's economic fundamentals and issuers are getting better and solid. This fundament will be the thing that drives the Indonesian stock market to become one of the attractive investment places.

Indonesia's macroeconomic conditions in the past few years have continued to improve. Economic growth can grow at the level of 5%. In fact, 2017 will continue to improve. This growth was also supported by controlled inflation, a stable exchange rate, and solid financial sector stability.

Not only that, the government also continues to be serious in improving the structure of the domestic economy which has been a weak point of Indonesia, so that when external sentiments emerge, the financial markets shake.

Fiscal, economic and legal reforms have been and will continue to be carried out. Not only that, the government continues to boost infrastructure development to reduce the economic costs that have been very burdensome.

All of these reform policies have received positive appreciation from a number of world rating agencies. In February 2017, the rating agency Moody's Investors Service raised Indonesia's rating outlook from stable to positive.

Even so, this April the rating agency S & P Ratings reportedly will provide investment-grade ratings (investment grade) to Indonesia.

This is expected to encourage capital inflows, especially to the stock market and become the fuel that will drive the increase in the CSPI.

Not to forget, the authorities in the macroprudential and macroprudential sectors (BI and OJK) are also expected to continue to produce credible, transparent and measurable policies. However, this policy will be able to impact on the maintained confidence and optimism of investors in the financial sector, especially the stock market.

Written by: Desmon Silitonga - Head of Investment of PT Capital Asset Management