Understanding ‘Market Hype’, and Its Effect on JCI

In mid of July 2016, the world was overwhelmed by the Pokemon GO release, it became a hit instantaneously as the game was different with its usual release since the player would play it on the screen all-day, Pokemon GO let their players to play outside and walk anywhere. Because of its great fame, people who never knew the Pokemon video game (Pokemon as a game had been released since late 1990’s, Pokemon GO was its latest version), downloaded the game out of curiosity, and played it on their phones. Eventually, in less than a month after the release, Pokemon GO has been played by 45 million people worldwide.

I was curious to download Pokemon GO, and liked it for a brief moment of time. However, I stopped playing for various reasons: 1. It often rained in Jakarta then, so I was lazy to go outside, 2. If it didn’t rain the sun would shine with intense heat, not to mention the stinking air because of motor vehicle fumes, if by chance we had to find ‘the monster’ on the street, and 3. If we had lived in a quiet town with less people, it would have been safe for us to keep walking and looking at our phones all at once. But if it was in Jakarta, a car might hit you! I meant, that I did not say I dislike walking, but instead I loved it. But it would be more exciting if we had been able to take a stroll in the mountain or beach while looking at scenery, rather than the jammed and crowded town street and to look at the screen together.

And.. today I got to know the number of Pokemon GO’s player has fallen drastically, from 45 million to near 30 million, and it kept going down. All the hype and excitement about Pokemon GO disappeared fast, as fast as its release last month. But it was highly appreciated by the real Pokemon fans, with the decrease of players then there will not be complains such as overload server, failed login, and others. For the true ‘Pokémon trainer’, Pokémon GO’s dwindling popularity was not a reason to stop playing it. Meanwhile, people who played because of its hype, they might have uninstalled it from their phones.

Nah, the release of Pokemon GO which became popular quickly, then its popularity fell down fast, it is called as ‘a hype’. The hype, or literally means ‘sensation’, is a situation when some people feel excited and enthusiastic about something, and it spreads quickly. In today’s internet era, when someone likes something, in this case it is Pokemon GO, he will share it on social media and others, and it becomes headline news in the media later, therefore people become curious to play. But when those curious people realize that Pokemon GO is not as exciting as they thought, then they stop playing it, and their enthusiasms disappear.

Okay, then what is the relation between ‘hype’ with the stock market, especially Jakarta Composite Index (JCI)?

With the Pokemon GO release last July, the Government also announced the tax amnesty policy, they said that it would improve tax income for infrastructure development, withdraw funds belonging to the Indonesian conglomerates saved abroad to increase national liquidity, and eventually grow the economy. And it was different with previous policies, the Government now socializes tax amnesty intensively, to make it popular and to trigger enthusiasm among the market participants, in which JCI rises quickly in July from 4,800 and almost reaches break new high at 5,500, as if tax amnesty policy were a success to strengthen the economic growth.

But the fact is that this policy of tax amnesty has just begun to be implemented, thus has not made any real impact on the economy. Please note the targeted ransom they will collect at Rp165 trillion is just a possible target to aim, but it might be not.

Then recently several problems related to tax amnesty have come to the surface, such as rejection of some people mainly because they have to pay the ransom at 2% (and indeed, 2% is big. If the reported asset is Rp1 billion, then 2% is equal to Rp20 million, or it is plenty to buy a motorbike), but the ransom collected has not reached the goal (when this article is being written, it has collected Rp2.6 billion, but we are in late August), then I remember Pokemon GO, in which the story of tax amnesty becomes popular quickly, then it disappears soon after. Various assumptions about a thousand trillion withdrawn funds from abroad till the excited businesspersons who participate tax amnesty, eventually they only become wishful thinking, at least for now. Honestly, if the investors were excited to talk tax amnesty last month, now they become worried because tax amnesty is not only for conglomerates, but also for the stock investors who own asset as stocks, if the asset has not been reported in the Tax Return (Surat Pemberitahuan, SPT), also the investor has not ever reported Tax Return.

In conclusion, we can call the phenomenon of tax amnesty as a ‘market hype’, the hype occurs in the stock market because of certain news and big events, which makes the investors feel enthusiastic and raises IHSG significantly. However, when the hype disappears, then JCI automatically has no reason to rise anyfurther, and it might be the possible reason it is stuck at 5,300-5,400.

Then what will happen next? That, only time will tell. But as an illustration, the Indonesian stock market had a market hype about General Election in 2014, in which almost all the analysts said the sluggish economic growth in 2013 would recover in 2014, because of enormous money cycle related to President Election and General Election, and the sentiment raised JCI in the beginning of the year. Then on March, JCI climbed up to 3% in one day, after Jokowi announced himself officially as the President candidate (from the beginning, Jokowi was the favored Presidential candidate of the market participants). And with the quick count results showing Jokowi – JK as the winner on July 9^th, to its inauguration on October 20^th (it unexpectedly had a smooth run, even Prabowo attended the event), so the market hype called ‘Jokowi Effect’ kept its run, and finally JCI closed its position in 2014 with a promising increase, which was 22.3%.

JCI had a dramatic rise in the last minute of trading session on March 14, 2014, shorty after Jokowi announced will run on Presidential Election

But in the beginning of 2015, the economic condition suddenly became sluggish, trading did not run well, Rupiah kept falling, and the companies reported bad performances. It was the moment, the phenomenon of Jokowi Effect on the stock market (it lasted for a long time, longer than a year), it finally faded and did not come to the surface anymore (since 2015, nobody had talked Jokowi Effect anymore), and JCI closed with the downfall of 12% throughout 2015.

So now, the analysis is simple: if the Government overcomes the issues about tax amnesty in the future, and the ransom reaches the target at Rp165 trillion then the goal will be sensible enough to be achieved, and ‘the hype’ occurred two months will keep its momentum, and JCI will have a chance to climb higher. But what will happen if the conditions fail? It is certain ‘the hype’ will disappear, people will not turn their attention on tax amnesty, and will reconsider fundamental reasons. So, let us hope if the tax amnesty hype disappears, the economic fundamentals stay positive, at least it does not get worse as in 2015 (and the good news is, the latest economic growth is 5.18%, it is far better than mid of 2015, which was 4.67%).

Because if investors’ enthusiasms of tax amnesty disappear, and the economy/company performances do not improve then.. I do not need to tell you where JCI is going to move, right?

Original article was written (in Indonesian Language) in August 31, 2016. For inquiries, please contact the author by email teguh.idx@gmail.com