In Friday, November 11,
the Jakarta Composite Index (JCI) dropped 4.01% in a single trading day, which,
of course, sparks some panic. But because the index was still in a relatively
high position, ie 5,200’s, then the panic didn’t became a widespread. Because
if you already bought some good stocks at the beginning
of 2016, then you must be still in a profit position, although the profit is
probably not as big as before.
However, because the 4%
drop was coincided with a series of important events from both inside the
country and overseas, there is speculation that associates the fall of JCI with
the election of Donald Trump as President of the United States, or with the
‘drama’ over the non-active Governor of Jakarta, Ahok, that is not yet fully
clear. Thus, the stock market was thrown into confusion.
So in this condition,
in order to renew our investment strategy (to match with the current situation
of the market), an investor is required to sort out the information, to
distinguish valid information which based on facts and data, from information that
is merely an opinion or rumor, that actually has no effect to the movement of
JCI nor any certain stocks. The good news, since the position of JCI is still
quite high, it is still not too late if we have to sell some of our stocks. So
what are the facts and figures that need our attention? Well then, here we go!
First, and this is the
easiest point to be seen, the JCI at 5,232 has gained 13.9% since the beginning of the year 2016 (year to date/YTD), and
it was very high compared to the
increase in stock indexes in major countries such as the United States (6.8%),
the UK (8.8%), China (minus 9.7%), and Japan (minus 8.7%). When compared with
some neighboring countries, the rise in JCI also relatively high compared to
Malaysia (minus 3.4%), Singapore (minus 2.4%), Australia (1.9%), and only
behind Thailand (16.4%). Taking into account the fact that equity markets
around the world is still sluggish in 2016, that many stock indexes were not
rising but instead dropped (the Singaporean Straits Times have even been
negative for two years in a row), the increase in JCI is somewhat too fast. Because on the other hand,
the financial performance of the major listed companies on the Indonesia Stock
Exchange (IDX) in this year is still not fully recovered from 2015, where their
net income were still dropped. I mean, if Astra International (ASII) et al
posted an increase in net income in this year, the 13.9% hike for the JCI is
supported by strong fundamentals and could continue, just like in 2009 in which
the stock index skyrocketted 87.0% after the market crash of 2008, because in
2009 the companies once again (or still) posted a very good financial
performance.
But unfortunately for
today it is not the case, so like it or not, sooner or later the JCI will be
back to its ‘right track’.
Second, throughout the
first half of 2016, precisely until the beginning of June 2016, the market was
still moving moderately in accordance with the development of the domestic
economic fundamentals, which the JCI, although rallied from its initial
position of 4,593 at the beginning of the year, but the rally stopped at the
level of 4,800's.
But still in the month
of June, there was a key event that led to an increasing optimism of the market:
The government's policy entitled Tax
Amnesty (TA), which were expected to: 1. Increase the state tax revenue to
fund the development of infrastructure, 2. Withdraw the funds belonged to
Indonesian business person that had been put outside the country to return to
the homeland (repatriate), and some of which will go into the capital market,
and 3. The process of incorporation and the investment will be simplified to
accommodate the repatriation of funds, and it will eventually boost economic
growth itsel. You can read again the full story in
here.
And unlike to the other
Government policies, this TA was very popular and discussed by many people
ranging from rich entrepreneurs, grocery store owners, civil servants, private
sector employees, and also the stock traders and investors. The booming of TA then attracted foreign
investors to buying stocks in large quantities. In mid August 2016, the foreign
net buy in the IDX was already Rp38 trillion, or in other words the foreigners
were buying stocks worth Rp34 trillion (about US$ 3 billion) in just two months
(as in mid-June, before the booming, the foreign net buy was only Rp 4
trillion). And consequently the JCI jumped from 4,800 to 5,450's.
However, just like the other
sentiments that became popular at one time but later forgotten, this story of TA
is no different. In late August, when the JCI was already high and investors
became apprehensive of what’s next, the TA sentiment had faded, and the market
was in a state of 'quiet' that there was no positive nor negative sentiment, thus
the JCI was stalled. At this point we can conclude that if later the market is crowded
once again either by positive or negative sentiments, the composite index could
easily fall, if sentiment turns out to be negative. Actually, at the beginning
of September, when the sentiment of TA was already dimmed, the JCI had a quick
drop to 5,146. But later came out the news that the state revenue from the tax
amnesty, which was going nowhere at the beginning of its implementation, was
successfully reaching Rp92 trillion (from the target of Rp160 trillion), just
before the deadline of Tax Amnesty Phase I on September 30. As a result JCI
went up once again, but the gain was halted at the resistant of 5,450.
So when the JCI is now
drop, in fact it is just repeating the decline that occurred in early
September. Just like in early September, today nobody’s talking about tax
amnesty.
Third, about the ‘Trump
Effect’, in these days everyone has their own opinion and analysis about the
influence of the election of Trump as the US President to the global economy,
including Indonesia, where some people think that the influence would be good,
some other think that it would be bad, and the rest have no idea at all. Then about
the case of Ahok, after the big demonstration on November 4, there is also a
rumor that there will be a another demonstration on November 25, and the
uncertainty of the political situation in the country related to this issue will
probably continue until the Election of Jakarta itself was held in February 2017.
Now, if the stock
market was already covered by ‘uncertainty’, where almost all people are
confused about what would happen if Trump do this, what if Ahok do that, then
what will happen to the JCI? Dropped further, of course, and it's not because
of our economy has fallen or the like, but because investors will step aside until everything becomes clear. Plus,
it's the end of the year, where most people (including me) is busy thinking
about going on vacation for the new year, rather than talking about stocks
everyday. I mean, come on man! We need to rest our eyes and fingers!
The Bright Side
Until the third point
above, all indicate that JCI is likely to fall further, and that a 4% drop
yesterday might be just the beginning. However, wait until you read the points
of the fourth, fifth, and sixth. Okay, here we go again.
Fourth, after the
booming of tax amnesty, the stock market actually got another boom, namely the increase in commodity prices, especially
coal, where since last October, the coal stocks rose rapidly and began to
attract the attention of investors, and some of them have also begun to make
huge profits. If this momentum continues, the market optimism will remain
intact, and that will prevent the stock index to dropped further (because JCI will
only dropped heavily if everyone is
in a state panic and despair, remember that).
Fifth, we know that
since 2015 until today, the Government as the largest ‘conglomerate group’ in
the IDX has many corporate action ranging from the IPO of SOEs, IPO for SOEs
subsidiaries, right issues, and the securitization of assets of state-owned
enterprises, in order to finance infrastructure development. So now, to help
these corporate actions to be successful, then what is the requirements? A
stable market condition, of course! For example, if at one time the government
wants to hold an IPO of an SOE, but at the same time the JCI dropped to 4,500,
for example, would the investors have appetite for the IPO? You know the
answer. Thus, the government has an interest to keep the JCI at ‘confident
levels’, or at least would not fall to a despair level, and actually it’s easy job
for them. I mean, how do you think that the stocks like PPRO, SMBR, INAF, until
TLKM could rise until several hundred percents in a matter of months?
So, believe me, if
later the JCI drop to a level which the Government considers that it is already
too deep, they will immediately take action, whether it be through the IDX, the
Financial Service Authority (FSA), or others, thus the market will quickly recover.
Still remember when panic selling hit the market in August 2015? At the time
the Minister of SOE, Rini Soemarno, directly gave instruction to Bank BRI et al
to buy back their shares, and shortly thereafter the stock index rose sharply
in November of the same year.
And finally, sixth,
after almost fell into the crisis in 2015, in this 2016, the macroeconomic
fundamentals Indonesia is slowly but surely starting to recover, thanks to the
incessant development of infrastructure by the government, not including lots
of economic policy package to stimulate the private sector (so fear there are
14 packages), and the development of e-commerce
industry. In 2015 the economic growth was only 4.67%, Rupiah plummeted to
as low as Rp14,700 per USD, inflation was high at 8% (then because of rising
fuel prices, after the fuel subsidy is revoked), unemployment 6.2%, and the
balance of exports and imports also had deficit (although turned to surplus at
the end of the year).
While today? Well, the
latest figure of economic growth was 5.02%, the Rupiah is stable at Rp13,000’s,
inflation is very good at the level of 3.3%, unemployment 5.6%, and the trade balance
kept surplus since the beginning of the year.
And you know what? All
of those positive developments are achieved when the prices of commodities,
especially coal and crude palm oil (CPO), which are the backbones of the
Indonesian economy in the last two decades, were still not fully recovered!
Actually, when the economy in the country began to slowing down after the year
2011, the main and only cause was the drop in prices of coal and CPO, which
were (and still are) our main export commodities. And since we know that the
commodity prices begin to rise back, then what do you think about Indonesia's
macroeconomic outlook for the year 2017?
 |
| Palm oil fruit and coal, the main commodities of Indonesia |
Conclusion
In conclusion, JCI will
probably dropped further, that’s normal, but the decline will not be too deep, and
I including those who believe that the JCI will close the year of 2016 in a position that is higher than the position of
last year, ie 4,593. After all, there are dozens of stocks that has gained more
than a hundred percent in this year, which need a ‘little adjustment’.
Okay, then what is the
strategy? What should I do now? Well, it's obvious, is not it? If your position
is still full in stocks, you can sell some of them to gain some cash, at least
30% of the total value of your portfolio, then wait for some time. At the end
of Desember, when all the commotion about Trump, Ahok, etc is eased and
replaced by the optimism of the new year, then that’s when you can go full
power. Remember that, just like the hoopla about the Tax Amnesty woul eventually
fade over time, then all the confusion about the 'Trump Effect' will also be
forgotten, and the market will recover by itself when people realize that they
can buy BBRI et al in a price that is.. what d’ya say? Reasonable.
Contact author by email: teguh.idx@gmail.com
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