You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

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Market Outlook for 2017

Until Monday, January 9, the trading volume on the Indonesia Stock Exchange (IDX) is fairly low with an average transaction value of only Rp5.25 trillion (US$ 400 million) per day since the beginning of the year, or far below the usual Rp6 - 7 trillion (about US$ 450 – 550 million) per day. This situation may raise the question: What’s happening? Actually the stock market is usually crowded with transaction at the beginning of the year, is not it? Then how about the outlook for Jakarta Composite Index (JCI) for the year 2017? Okay, let’s talk about it.

If you are confused by the current ‘quiet’ condition of the market and also the stagnation of JCI, then remember this: In the medium and long term, the movement of JCI and any stocks will be influenced by the fundamental performance of the companies as well as the performance of macroeconomic fundamentals of Indonesia. While in the short term, in this case three months or less, the movement of JCI will be influenced by the news or any sentiments on the street/media. If the sentiment is positive, the JCI will rise, but if bad, the stock indices will drop.

But what if there is no such sentiment like today? Then of couse, the JCI will not go anywhere aka stagnant, while the value/volume of stock transactions will be small because people who own stocks will not sell their holdings, and on contrary, those who still own cash will wait n see from the outside.

That’s first, related to the lack of sentiment. Secondly, based on experience, regardless of whether the JCI will rise or drop by any percentage in a given year, the stock traders and investors will be eager to do the stock trading activities at the beginning of the year only if the JCI had increased significantly in the previous year, and that ‘habit’ can be explained: If you made big money in 2016, then you would be eager (and optimistic) to make an even bigger money in this 2017.

But if you portfolio is in losses, or in profits but not as high as expected? Then of course, psychologically, you would be less eager to buy more stocks. Actually the JCI made a decent return of 15.3% throughout 2016, but the majority of investors were likely made lower returns, because they only entered the market in the middle of the year when JCI has already risen to the level 5,000's, ie when the booming story of tax amnesty just began. While at the beginning of 2016, when the market was still not fully recovered from the mini-crash in 2015 plus the fall of the Shanghai Stock Exchange (in June – July 2015, the SSE indices slashed from 5,178 to 3,383 in just one month), not to mention negative sentiment related to the decline in oil prices, to issue of limitation of banking’s net interest margin (NIM), then the decision to buy any stocks would appear to be a foolish move, and any analysis that concluded that the JCI would rise to 5,000 would be called ‘does not make sense’.

In essence, although some of you may succeed in making large gains from the euphoria of tax amnesty, the rise of state-owned stocks, to the booming of coal, or simply because you were able to enter the market since early 2016, but the performance of most investors were likely not good enough to beat the market (it can be seen from the average performance of mutual funds), and it psychologically affects their optimism in facing the new year of 2017, thus the market became quiet, almost as quiet as in early 2009, ie after everyone suffered huge losses in the market crash in previous year (2008).

The Outlook for 2017: Fundamentally Good!

However, we know that also in the year 2009, the JCI instead skyrocketed for a record of 87.0% during the year, which means that the slow movement of the JCI at the beginning of the year does not mean that the stock indices would be fall apart on that year, absolutely not! In fact, in some cases such as in 2009 and also in 2016, the quiet periods of the market at the beginning of the year were actually a big opportunity for smart money, ie any individuals or institutions who are able to analyze deeper into the fundamental factors rather than just watching the ups and downs of the JCI (or the stock price), so they can buy stocks early when the prices were still cheap, thus the profit would be bigger.

Then how about this 2017? Whether the currently quiet market at the beginning of the year is also an opportunity to buying stocks early before others, just like we did in 2009 and 2016? But what if it turns out that the market would be quiet, or even dropped, for the whole year?? Well, there are actually a lot of factors that must be analyzed to answer these questions, but to make long time short, I will invite you to see only two of them.

First, in the last ten years, regardless of the movement at the beginning of the year, but the JCI will likely to rise much in a given year if it was dropped in the previous year. In addition to 2009 and 2016, JCI also gained a lot in 2014 (22.3%), partly because in 2013, the JCI dropped 1.0%. Based on this hypothesis, the JCI will probably will not rise much in 2017, or it could even go down, because in the previous year (2016), it rose 15.3%.

Nevertheless, take a notice: The rise of JCI during 2016 was supported only by big cap stocks like Astra International (ASII), and Telkom (TLKM), even not all of them because some other big caps like PGAS, SMGR, BBNI, their prices weren’t going anywhere (even JSMR went down instead). While the second liner stocks, ie the group of stocks with the largest number of members in the market (in the Indonesia Stock Exchange, there are only about thirty big cap stocks with market cap of more than US$ 1 billion each, while the rest is considered small caps), also did not go anywhere, and even some of them are still in their bottom position in the last five years. Also, even though the coal stocks have risen tremendously throughout 2016, but do not forget that before that, they had been down for a long time since 2012, so their current position is actually still low.

PT Bukit Asam, Tbk, one of the best coal stocks in IDX in terms of fundamentals, but also with premium share price.

In short, although there are exceptions for certain stocks that already rise much either because it was ‘boiled’ (the last one is BJBR), or purely because of natural market mechanisms, but currently most of the stocks in the stock exchange haven’t risen much since the beginning of 2016. Yes, these stocks rose a lot in the mid of 2016 during the euphoria of tax amnesty, but later they went down once again. As a result, the current market position is more or less the same as the beginning of 2016, so I could say that at this time, there are quite a lot of stocks that are sold at a discount! So our job is to sort it out, which stocks that are fundamentally good.

Second, if you have been in the market for a long time, your market sense will be well formed, and consequently you will be able to sense if there is something wrong with the market. And I kid you not, these ‘senses’ are real, and I can prove it. In 2013, the fall of coal and other commodities caused the national economy of Indonesia, which previously continued to grow rapidly, began to falter, and in August I could see that it will negatively affect the JCI (you can read again the analysis here), so I decided to sell almost all of my holdings just before the JCI actually fell. Then in 2015, the national economy was once again in a depressed condition, indicated by (among others) the fall of Rupiah against US Dollar, so in March I already concluded that the JCI may be down for that year, you can read again the analysis here. A little reminder, in March (and also in April 2015), the JCI just kept breaking new high to the level of 5,500's. So if you suddenly say that the market will crash anytime soon, then you will be accused of being a 'hate speech' spreader.

But later, the JCI was actually dropped in 2013, and dropped once again in 2015. In this case I did not saying that I can predict the market, not at all! I of course have no idea where my stocks will going in this year, 2018, 2019, and so on. What I’m saying is that, once again, if there is something wrong with the market, then if you are experienced enough, you will naturally sense it, so later you can act accordingly.

Then how about 2017? Is there also something wrong? Gladly, there is not, at least until now. You see, in 2013, the JCI was down as the economy starts to slow down, mainly due to falling commodity prices, and down once again in 2015 when the slowdown reached its peak, when Indonesian economy was almost fell into crisis. Entering 2016, the economy slowly but surely began to recover, but unfortunately the companies still did not posted improving performance, so the JCI only rose moderately.

Later in early 2017, aka today, then whether you realize it or not, but the conditions are almost all in contrast to the year 2013 and 2015. Take a look: Commodity prices are rising, Rupiah is stable, economic growth is stable at 5%, trade balance is surplus, low interest rates, low inflation, low unemployment rate, and so on.. Actually, our economy is currently at such a stable point that when the price of Pertamax (gas fuel with RON92) increases for only Rp300 (US$ 2 cents) per liter, it appears to be an extraordinary event! For the future, of course I don’t know what will happen, but if you look at the massive government spending in the field of infrastructure development, as well as the stable price of coal and CPO which is actually the backbone of the economy, then I am among those who are optimistic that this comfort condition will last until the end of 2017, and of course it will lead the JCI to move into a positive zone.

However, the above is an analysis for the long term. So how about for the short term? What sentiments that will come later? Well, of course I have no idea about where the JCI will move in the next one, two, or three months from now on, because I cannot control which sentiment that will be blown up in the media. But as long as there are no radical changes in national economy, I believe that this is the right time to put your investments, then wait for next several months. Based on experince, if you can corretly select you stocks and buy it at a price that is really low, then you don’t have to wait for more than one year, but on the hand, you cannot expect to make profit overnight. So, all you have to do is to buy your selected stocks, then wait, and I’ll see you later in six to twelve months.

Original articles was written and published (In Indonesian Language) in January 10, 2017. Any inquiries? Contact the author by email, teguh.idx@gmail.com

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