Market Insight 2019

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1. Effects of Presidential Elections on the Indonesian Stock Market

The Election of the President of Indonesia is a democratic process for electing the President and Vice President of the Republic of Indonesia. The President has responsibility to become head of state and head of the Indonesian government for 5 years. As head of state, the President is the official symbol of the Indonesian state in the world. As head of government, the President is assisted by the vice president and ministers in the cabinet, holding executive power to carry out daily government tasks. Therefore the presidential election is a very important event for Indonesia and makes it possible to influence the Indonesian stock market.

On the right table, it can be seen that in four presidential elections, it turned out that the average of Indeks Harga Saham Gabungan (IHSG) gave a profit of 13.85% and was able to outperform other financial market investment assets, such as average of deposits (6.8%), fixed income mutual funds (2.3%), government bonds (2.7%), US dollars (-5.3%) and gold (-4.7%) during the election period. The calculation is calculated in 2 months before the announcement of the election results by the Komisi Pemilihan Umum (KPU) and 2 months after the announcement of the presidential election.

The increase in the IHSG movement was caused by-elections which tended to increase euphoria of the people. Moreover, a stable election process in the four periods election also the key to minimizing market volatility and encouraging investor confidence to reenter the Indonesian stock market. Hence, a stable presidential election gives a positive correlation to the Indonesian stock market

 

2. Banks stock price fall due to Jokowi’s request

Since mid-year of 2019, BI has cut their 7-day repo rate by 1% but most banks still hasn’t significantly reduce their interest rate. Then, in Indonesia Banking Expo that held on November 6th  2019, Jokowi ask the bank to reduces their loan interest rate.  However, it isn’t an easy request since the bank’s Net Interest Margin is already small, cutting the loan interest smaller might lead to financial problem.

Although government can’t directly adjust the interest rate, they still can give pressure to banks that indirectly forcing them to reduce the interest rate. that’s why, following this request, per November 8th  2019, Finance sector index has drop from 1305 to 1270. 3 biggest bank in indonesian stock exchange BBCA,BBNI and BMRI is no exception since all of them got a price drop.

However, that’s doesn’t mean this sector is bad. Some of the stocks, including the ones mentioned above is still a company with good fundamental and millions of customer and this might be an opportunity to buy a good bank stock in cheap

 

3. Wise Investment in Coal Sector

At the end of the year of 2018, Indonesia succeeds to close the inflation to become stable, but one economics expert from the University of Indonesia, Chatib Basri adduce that the government needs to be aware of commodity prices. He said that commodity prices risky to fall in 2019(CNBC/January 22, 2019). Commodity prices are talked about coal and palm oil. Price fall could affect export, government income, and citizen income especially citizen in Kalimantan, Sulawesi, and Sumatera.

The price fall of a commodity not only give external effects but also could make internal effect such as company performance. Fitch Rating (Global Securities Rating Agency), re-release outlook of coal miner performance in Indonesia. Here the information

based on Fitch Rating’s report

  1. Geo Energy Resource B/Negative
  2. ABM Investama B+/Negative
  3. Adaro Indonesia BBB-/Stable
  4. Bayan Resources BB-/Stable.

From the report, Fitch said that Geo Energy and ABM Investama are potentially experiencing liquidity and cash flow problems, while Adarao and Bayan still can survive even though the price fall of the commodity.

All in all, investors should be wise if they want to invest in the coal sector. Investing in the coal sector is fluctuating, it would be better if the investor invests in the short term. We should put attention to the issuer performance and the trending price of the commodity.

 

4. The Downtrend of Indonesia Central Bank Interest Rate Towards Banking Sector

 

Bank Indonesia has laid down the new rate of BI7-day Repo Rate of 5% on 24 October. The downtrend in the rate has continued since the first decrease in the year which was in July. The decreasing of BI7DRR has forced the local banks to lower their interest rate to adjust with the central bank. This is done by the government to stimulate the weak economy and avoid the impact of slowing global economic growth. This will increase the credit growth rate and allow the banking sector to deliver the loan service more with caution to the strict Loan to Depost Ratio (LDR), not to exceed the reasonable limit established by Bank Indonesia of 92%.

LPS expected the LDR to be 96.8% at the end of 2019 due to its aggresive perofrmance of the loan service with low growth of the third-party-fund. Therefore, banks would be finding new source of non-deposit financing through issuance of debt instruments or other loans.

There will be a competition in the banking sector since they would have to generate interest income in the strict liquidity of the sector with the same condition for other banks, banks will decrease their interest rate one by one to compete with each other to give credit. The implementation anyway takes time for banks to adjust with the market, the impact of the policy is expected to happen in 6 months or more. 

5.Will Indonesian Economy Collapsed?

Indonesia’s GDP has grown slower and slower in Q3 2019 by 5.02% if we take a look in the previous quarter of 2019. It still continues the slowing downtrend, from Q1 and Q2 by 5.07% and 5.05% respectively. The current GDP in Q3 2019 was way lower than the same quarter in the previous year by 5.17% GDP growth. The biggest contributor to Indonesia’s GDP is household consumption by 56.52%. Bank Indonesia (BI) reported the Indonesia Customer Confidence Index (CCI) in October is 118.4. It was dropped from the previous month by 121.8 and current CCI is hit the lowest point since February 2017. CCI is an economic indicator designed to measure the optimism or pessimism of the consumers towards the current economic condition in a country.

Another big contributor or the second to Indonesia’s GDP is Gross Fixed Capital Formation also known as investment. In Q3 2019, the investment just grew 4.21%, slowing compared to the previous quarter which was 5.01% and the same period the previous year which amounted to 6.96%. The slowdown in investment is likely to continue if we see a contraction in the manufacturing industry.

Moreover, citing data published by Markit, the PMI (Purchasing Manager Index) in October recorded at only 47.7 points, down from September which was at 49.1 points. It implies that manufacture activities in Indonesia currently facing a contraction due to the number of the index is below 50. Looking back, Indonesia’s manufacturing sector has experienced a contraction in four consecutive months or since last July. With manufacturing activity continuing to contract, the business world will tend to hold back its investment.

Then there are exports which are the third largest component of GDP. In the third quarter of 2019, BPS reported that exports of goods and services only grew by 0.02%. Much slower than the same period the previous year which rose 8.08%.

The trade war that occurred between the United States (US) and China is the cause of Indonesia’s weak exports. Not only RI, but many countries are also affected by the trade wars of the two world economic giants that have lasted more than a year. The World Trade Organization (WTO) estimates that global export growth this year is only 1.2%. Slower than the forecast made in April at 2.6%.

Meanwhile government consumption, the fourth largest contributor to GDP, only grew 0.98% in the third quarter of 2019. Much slower than the previous quarter which reached 8.25% and the previous year period which was 6.27%.

If these conditions continue, Indonesia will have a high possibility of dealing with this slow economic growth even further. In addition, foreign large securities are now projecting that the Indonesian economy will grow below 5% in 2019. Other than that, a consensus compiled by Bloomberg, JPMorgan Chase projected the Indonesian economy will grow 4.9% in 2019, meanwhile Deutsche Bank projected at 4.8%.

6.The Rise of Cigarettes excise, What to be Worried?

It is official that cigarettes’s excise tariff will increase by year 2020, Minister of Finance, Sri Mulyani has announced that by January 2020 the excise tariff of cigarettes will rise by 21,55% and it has regulated through new regulation (Peraturan Menteri Keuangan (PMK) 152/2019 tentang Perubahan Kedua atas PMK 146/2017 tentang Tarif Cukai Hasil Tembakau)

There are 8 types of cigarettes regulated in the regulation, both domestically and imported, in which the excise tax and HJE of cigarettes are contained in appendices III and IV, respectively.

For domestic-made cigarettes, some of them are Group I Sigaret Kretek Mesin (SKM) with the lowest HJE of Rp 1,700 subject to Rp 740 per gram or gram, an increase of 25.42% from Rp590. Then, SKM class II for HJE of more than Rp 1,275 is subject to a tariff of Rp 470 per stick or gram, up 22.08% from Rp 385. For HJE cigarettes Rp 1,020-1,275 subject to excise tax of Rp 455 per stem or gram, up by 22, 97% of Rp 370. Sigaret Putih Mesin (SPM) group I with the lowest HJE of Rp 1,790 are subject to an excise tax of Rp 790, up 26.40% from Rp 625. Sigaret Kretek Tangan (SKT) and Hand White Cigarette (SPT) class I with HJE more than Rp 1,460 are subject to an excise tax of Rp 425, up 16.44% from Rp 365.Sigaret Kretek Tangan Filter (SKTF) and Sigaret Putih Tangan Filter (SPTF) with HJE of Rp 1,700 are subject to an excise tax of Rp 740, up 25.42% from Rp 590.

Furthermore, imported SKM cigarettes with a retail selling price of Rp 1,700 are subject to an excise of Rp 740. Import SPM cigarettes with a retail selling price of Rp 1,790 are subject to an excise tax of Rp 790; SKT or imported SPT cigarettes with a retail selling price of Rp 1,461 are subject to an excise tax of Rp 425. SKTF / SPTF cigarettes with an HJE of Rp 1,700 are subject to an excise tax of Rp 740.

Meanwhile, the types of tobacco products that did not record an increase in the new excise tax rates were iris tobacco, leaf cigarettes, incense softened cigarettes, and cigars. Why did the group not go up? That’s because the market shares and contribution is relatively small compared to SPM, SKM, SKT and SKTF.

Performance of cigarettes sector also affected by this new regulation, some of the big market holder has scored 15-20% downtrend during last October and has overwhelmed some of investors and panicked sell has been going ever since

7. The Uprising Price of CPO : Is It Finally A Good Time to Buy?

Agriculture sector has been known as an underperforming sector in the stock market that since the first quarter of 2018 imposes failing prices. From the constantly slumped price of CPO (crude palm oil) and PPO (processed palm oil) to the emersion of environmental issue that the industry costs, they have all contributed into making the sector unattractive for the Indonesian investors or traders.

However, for the first five days in November 2019, the agriculture sector has shown a positive improvement, 2.17% increase in the industry index (1/11-6/11). The number is relatively high, considering the constant downfall of the industry in the last 2 years. According to analyst Andre Benas, the improvement is due to the investors’ expectation that CPO producer performance will do better in future time alongside the uprising price of CPO. Within the past month, the average price of CPO has increased from less than RM2000 per ton to RM2100 per ton.

The uprising price of CPO is encouraged by two things. First, is the expectation that palm oil supply will decrease in 2020, due to the drought that happened in the late 2019. Second, is the B30 policy (30% mixture of biodiesel in fuel oil) that the government will impose next year which is predicted to increase the domestic demand of crude oil. The increase in demand is predicted to be 2.5 times higher, from 3-4 million tons currently to 10 million tons for the next year.

Another analyst, Jessica Sukimaja, mentioned that the uprising CPO price is also influenced by external factor, such as the weakening of ringgit towards dollars and the uprising price of soy as the substitute commodity for palm, which encourages shifts in people consumption.

Quoting Andre, nowadays is the best time to buy stocks of the agriculture sector, two among which are AALI (Astra Agro Lestari) and LSIP (PP London Sumatera). Both companies are favored because they have CPO upstream supply chain, which makes them the firsts to experience benefit from the uprising price of CPO.

 

8.The Current Situation of Trade War between China and US which Predicted to Meet The ‘Phase I’.

Image Source: MarketWatch.com 

Trade war between two world giant economy, US and China, has impacted the economy in the global scale so much. This trade war started by the policy of charging tariff for imported products from China including smartphone, computer, laptop and toys which are frequently imported goods from China to US. This distress also faced by US, where China is the largest buyer of US agricultural products, especially for soybeans. Quoted from CNBC, US charge the tariff for US $ 550 for chinese goods and China charge for US $ 185 billion. The world supply chain affected so much by this action, one of them is Indonesia  since China is the main export destination of Indonesia for selling coal. Quoted from The Ministry of Foreign Affairs, Indonesia exporting 128 tons of coal to China which the total valuation for around US $ 7.6 billion.

This trade war impacting so much to many aspects, such as the economy and finance. World Bank and IMF unified to reduce the projected economic growth in 2019 to 2020 because of this global economy decrease phenomenon. The Federal Reserve, US Central Bank, continuously cutting the interest rates to provide stimulus to the economy in US until the economy in US getting better. The inverted yield curve of the US Treasury Bond is also the sign of the recession which is not a good sign. The coal price has the decreasing trend, it caused by the weakening of this global economy impacted by this trade war since coal is one of the the most commonly used fuel in the manufacturing industry in the world. Because of this uncertainty surrounding, it affecting hampered investment throughout the world.

However it looks like this trade war will be ended soon, in the near future there is an issue where both US and China will sign the trade agreement. But this issue rejected by the US side, said that this only a propaganda made by China and there still no official statement yet. The ‘Phase I’ of the end of this trade predicted to be signed soon. This is indicated by how China started to purchase US’ agriculture commodities and US delayed the tariff for China’s products. This issue actually causing the weakening price for gold. The gold price in COMEX New york decrease as much 0.2 %  in US $ 1,452.75 in November 12, 2019 where it closer to the lowest price in this quarter. It caused by the investors tend to start investing in riskier investment instrument after the issue blows up. Trump will update the negotiation of Trade War between US and China in New York Economic Club on November 12, 2019 which very much awaited by the investors around the world for the good sign affecting the increasing index of Nikkei 225,stock market index for the Tokyo Stock Exchange, index which strenghtened for 0.8 %.

9. Careful Decisions on Tech Startup IPO

Initial Public Offering (IPO) is a process and launch of private company that sells their stock for the first time to the public and became listed company. Company’s vision on IPO is to get fund from public for certain reasons, such as expand businesses or to pay short term debt. And there are many people that believe this process can generate instant profit instantly.

Recently, unicorns have become common terms among people around the world. Unicorns defined for startups that has $1 Billion dollar in valuation. The thing with startup valuation is, it is measured on potential revenue-grabbing from later years from now. And also, to gain user and to create market that they monopolize, they need to be at a loss state commonly known as ‘burning money’.

In 2019, almost half of all companies that go public has traded below their offer prices. WeWork stated that they canceled and postponed their IPO and resulting in bottom low of their valuation.  What made investors neglecting this startup market are weak margins and their branding. Compared to software companies (75 %), some of huge startups like Uber (46 %), Lyft (39 %), Peloton (42%), WeWork (20%) reported far below the standard of software companies. In addition to that, their branding on IPOs have a trend to go for appealing and dramatic language that involve global change, and selling values that common people are confused with the business models that they are running in. Plus, their disruptiveness value does not come with proper business model that is reliable on profit.

To choose whether startup tech companies that is worth to invest, there are several tips to consider:

  • Profit oriented startups

To ensure the long-term sustainability of a startup that just done IPO, investors need to look out for the business model that startup running in. It means that the startups cannot be on burning money state as that business model does not generate any profit. Investors should look out for startups that started or running business model that set goals on profit. Do not look out for startups that provide big and disruptive value with minimum emphasize and orientation on profit.

  • Considering macroeconomic factors

Investors need to put macroeconomic factors to calculation as startups are playing in market that is very volatile. Because startups are prone to changes, investors should hold back if the macroeconomic factors do not support them to invest in startups.

  • Choose high margin startups

While most startups provide thorough value and globally implemented, little provide good margin profit. Investors need to be picky on what startups that has good margin profit to ensure the sustainability of the startup.

References

Winck, B. 2019. The IPO market is rebelling against many of 2019’s money-losing unicorns.

Here’s what’s scaring investors away — and what it means for the future. https://www.businessinsider.sg/ipo-market-outlook-trends-why-investors-rebelling-against-unicorns-implications-2019-9/?r=US&IR=T.

10. World Gold price Fall Effect on Indonesia Mining Sector?

World Gold Price Commodities price in the last month is falling, The Mining Sector index fell not long after the market open on Monday. This sector index fell by 2,8% from 1,525.02 points to 1481.35 at the closing on Monday . This event can be caused by some issue and one of them might be the gold price fall.

In the last few months, the world gold price is falling and today is the day that the prices reach the lowest price since August. There was an increasing gold price in the last October but in the beginning of November the Price was start to falling again. Some economist state that the gold price falls is one of the impacts that the positive sentiment of the Trade War Agreement that causing people.

The world gold price fall effect can be seen in Mining Industry that produce gold in Indonesia, The most visible impact can be seen in ANTM and MDKA, these two are the most big Mining Company that produce gold in Indonesia and their stock prices is falling cause by the effect the world gold prices. However, The effect of the world spot gold prices fall only gave effect on the Mining company that produce gold, Many of other mining company in Indonesia is still showing stock price growth that cause the Mining Index still gain growth by 1,36% on Tuesday.

Based on the condition above, the effect of World Gold price only give effect on Gold Mining Company and doesn’t give much effect on other. I think Mining Sector is still safe to be invested but still need a good investing decision and in Investing on ANTM/MDKA that receives the most impact of the Gold Price fall, Investor need to consider about the decision of trade war agreement to reflect the sentiment on the gold prices because the stock price is really depend on that.

11. Opportunity of IPO growth

 

Based on an article from CNBC Indonesia (30th January 2019), the growth of Indonesian IPO was greater than the other 2 countries, Singapore and Malaysia. It’s indicate that Indonesian Capital Market has been growth positively. Below is the data of IPO from Singapore, Indonesia, and Malaysia.

Because the IPO in Indonesia has been growth, we need more securities, below are securities that Indonesia has:

Below are funds of IPO and the projection for the next year (based on CNBC)

From all data above we must take the opportunity that have been offered. As IPO has been growth positively then it’s indicate that the economic of Indonesia is well. With this we as investors must take chance to invest in the capital market. To do the Investment we must consider several things like our capability to invest and the company/sector opportunity in the market. The investment that we do will be optimal with considering those factors.

 

References

https://www.cnbcindonesia.com/opini/20190124170034-14-52248/kencangnya-laju-pasar-modal-lampaui-singapura-dan-malaysia

 

12.The rapid rise of  Peer-to-Peer lending, shuld we jump or back off?

Some of us may have invested or being offered to fund a business as a sole investor or in a group of crowd0funders, with digitalization of finance we are now able to invest in business through online without even seeing the actual business. That is indeed, a peer-to-peer lending.

In May of 2019, Indonesia Stock Exchange reports there are currently 1.9 Million local investors throughout the country with 952,000 of them investing in stocks (Kompas, 2019), growing 19% percent from the end 2018 with 1.6 million, which have written an increase of 44% compared to the previous year. Means throughout the year, there is an actual increase in demand on both financial literacy and inclusion in Indonesia.

With the following of fintech growth in nation, Indonesia also witnessed the increase of peer- to-peer lending. Peer-to-peer lending as part of the fintech makes its curve upward as 106 peer-to-peer lending platforms have been listed by Otoritas Jasa Keuangan by the first quarter of 2019 (CNBC Indonesia, 2019). Peer-to-peer lending, or also known as P2P lending is an investment method that connects the borrower directly to the lender (Investopedia, 2019). This method is considered as debt financing as the lender will give an amount of money and the borrower will return the money with an additional interest rate. Moreover, compared to traditional banking, the credit risk generated by borrows will be weighted to in the investor, not the peer-to-peer operators (Davis, 2017). In Indonesia, officially listed online peer-to-peer lending such as koinworks, investree, amartha, crowde, and akseleran (Otoritas Jasa Keuangan, 2018) offers average returns of 17.49% annually.

As Peer-to-peer lending platforms offer a range of return from 10 to 20% annually (figure 1), which attracts lots of investors to diversified or even shift their investment decision of traditional investing through the stock market, bank deposit, or even government bonds— investment option that allows the investor to generate annual return of 6 to 8% (KemenKeu RI, 2019). Nevertheless of how intriguing the returns offered by peer-to-peer lending, at this current stage, investors should also be aware of the potential of default on the loan that could be caused due to high demand to invest while the background of the borrowing side is not carefully checked.

Although the return and benefits offered by P2P lending is packed as a low-risk investment, the concern on of peer-to-peer lending was proven by the china market crash started in 2015, with over 70% of peer-to-peer lenders will decrease by this year of 2019 (Bloomberg, 2019) caused by a Ponzi scheme and lack of regulation on the peer-to-peer lending industry.

What we need to check on peer-to-peer lending is not only the credibility of the platform it self but also the person who’s borrowing our money. Do not be greedy with all the high returns, but always check on our portfolio and risk put into each of our decision.

13.Why you should and shouldn’t worry about the Global Recession in 2020

            The threat of global recession is looming over 2020 and President Joko Widodo has declared that it might also cause a recession in Indonesia. The main cause of global recession is uncertainty in the global economy. U.S.-China trade war is still going strong and it has slowed the economic growth of both countries. Hong Kong, one of the strongest economies in Asia, have declared that it is currently in a period of recession caused by the recent riots. Not to forget the unclear resolution of Brexit in the United Kingdom. In addition to those uncertainties, the trade war and Hong Kong’s recession directly affect Indonesia’s GDP by reducing exports to those countries.

However when the last global recession happened in 2018 caused by the U.S. housing market, Indonesia still managed to to have 4,6% economic growth. This is because at the time exports only contribute 17,61% to Indonesia’s GDP whereas domestic consumption and investment contributes 55,79% and 31,25%. Last year, exports contribute 20,97% to GDP while domestic consumption and investment are still the majority. The fact that IHSG index declines throughout 2008 shows that Indonesian’s fear of recession deals more damage to the market than the recession itself.

Investors should be cautiously optimistic going into 2020. There is no reason to immediately limit spending and investment, especially since those actually supports Indonesia’s economy. On the other hand, the global economic climate shouldn’t be ignored and it’s wise to be more cautious in investing into industries that relies on exports such as mining. A good safe bet would be to invest into consumer goods because even in recessions, people still buy essential items such as food and hygiene products. Money Market and Fixed Income mutual funds are also a safe investment in a recession.

14.Indonesia’s Participation in becoming an Official Country Partner of Hannover Messe 2020: Will investment in the manufacturing sector be increased?

On April 2, 2019, Indonesia was chosen as the official partner country at the Hannover Messe 2020 exhibition. This exhibition is the largest trade show in the world held in Hanovver, Germany. The achievement of Indonesia as an official partner in the Hannover Messe 2020 exhibition is all about to introduce Indonesia to the world of the Road Making Indonesia 4.0 that has been created by the Indonesian government to change the work system or renew the manufacturing sector through the development and improvement of technological aspects.

Some of the industrial sectors that Indonesia will bring to the Hannover Messe event are automotive, electronics, chemicals, textiles and also food and beverages. One of the leading products from the automotive sector is Scheneider Electric and also Petrocy, an electric-based vehicle from the light house project that has been recognized by the World Economic Forum. Being an official partner of the Hannover Messe 2020 makes Indonesia the country with the strongest economy in ASEAN today, and has the goal of becoming the 10th most powerful economy in the world.

According to the head of the Industrial Research and Development Agency, Ngakan Timur Antara, with the application of industry 4.0 in the five main sectors, could increase national GDP in the manufacturing sector by 25% and increase net exports by up to 10%. With facts like this, it opens up opportunities for foreign investors to increase investment in the manufacturing sector and also digital infrastructure in Indonesia

15. Hong Kong’s Political Condition Keep Heating Up, What Is the Fate of Indonesian Stock Market?

 Large-scale demonstrations that have taken place in Hong Kong since early June have led to violence and made the local situation chaotic. This massive demonstration was triggered when the Hong Kong government discussed the extradition bill. The bill allows Hong Kong prisoners including foreigners to be extradited to China.

Because in the 2nd quarter of 2019 Hong Kong’s economy had contracted by 0.4% quarterly, economic growth that returned quarterly negative in the 3rd quarter of 2019 officially brought Hong Kong into a recession for the first time since 2009, when the global financial crisis hit. Entering the 4th quarter of 2019, Hong Kong’s economy has even got worse. Therefore, Hong Kong, which is a country with the 35th largest economic value in the world, has shaken the world and affected other Asian countries’ economy badly, especially Indonesia.

Hong Kong and Indonesia have close and strong bilateral relations with high business and trade values. However, the resignation of foreign investors in line with Hong Kong’s political conditions are heating up. At the same time, the weak consumption rate of Indonesians makes the stock market players in the country put up a very defensive position.

If Indonesia does not take effective steps to minimize its impact, it is quite possible that the Indonesian economy will experience a hard landing or significant slowdown in economic growth. When the Indonesian economy experiences a hard landing, the country’s stock market will surely suffer. On the other side, the IDX Composite is predicted to fluctuate with a tendency to weaken in a limited way. If investors are holding any stocks and are afraid that the capital market will collapse and want to save their funds as soon as possible, then selling along is now an option that can be considered. Lastly, the best step to do currently by investors is to wait because the stock price might go lower if the situation is not getting better.

16. Investing in Indonesia is Risky, What Should We Do?

Investment closely related to risk, risk itself is one of the important things to consider to find out the gain or loss of investment. We need to know that Investing in developing countries is riskier than in developed countries because of the market is dynamic and full of political uncertainty also vague of regulatory. Therefore, investing in Indonesia can be advantageous regarding the high risk of the country.

The demonstration is a common situation in Indonesia when the citizen is unsatisfied with the country’s current situation, this situation needs to be watched out to anticipate the worsening situation that can affect the stock market. The regulatory issue also can affect the stock market, for example, regulations provided by the Indonesian Ministry of Finance related to an average 23% increase in excise prices for cigarettes caused the cigarette shares to flare up. Bursa Efek Indonesia (BEI) stated that some stocks are falls, PT Indonesia Tobacco Tbk (ITIC) share price fell 3.16% to Rp 1,380/share, PT HM Sampoerna Tbk (HMSP) also fell 0.94% to Rp 2,100/ share.

Indonesia also faces more geopolitics because Indonesia resides in Southeast-Asia, the geopolitics that is now faced in Indonesia is the trade war of China and the United States. Corruption, Governance and Bureaucracy, Infrastructure, Natural Disasters, and volatile exchange rates which lead to inflation are a potential risk that can disrupt the Indonesian investment climate.

We should take advantage of this volatile market, by knowing the right situation and prepared strategies towards the situation. The volatile market is profitable for short time investment, and vice versa. The first things should be prepared to face this situation is to define a measurable and achievable investment goal by also set the risk that you can afford. After that diversify the portfolio, focus on the trending stocks in the market, create a short-time and long-time strategy, and do not forget to do some regular investment even in the downturn period for adding some income to your pocket.

References:

Theconversation.com, schwab.com, indonesia-investments.com, cnbcindonesia.com

17. Indonesia’s Nickel Will Shake The World With Export Restrictions

The government through the Maritime and Investment Coordinating Ministry lifted the ban on nickel exports limited. Limited here means that companies that can export must go through an evaluation process before being allowed to export nickel ore. The aim of the government to limit nickel exports is to respond to the United States-China trade war and improve the quality of nickel ore in Indonesia. This was revealed by Luhut B Pandjaitan as the Coordinating Minister for Maritime Affairs.

At present Indonesia relies too much on commodity exports, which still exports low-quality nickel and focuses less on adding value to nickel ore. It is important to note that Indonesia is the 6th largest nickel supplier in the world and has controlled 27% of the world’s market supply. Unfortunately, with such a large amount of Indonesian nickel commodities in the world, Indonesian nickel still has a low quality which is certainly also valued low. Therefore, the government is trying to implement the downstream industry by refining nickel through a smelter.

With the export ban on the sale of nickel seeds, the economic value of Indonesian nickel has increased due to downstream. The price of nickel ore that is not processed or not through the refining process is only valued at 36 USD per ton, whereas if the nickel has been processed into ferrous nickel the value will multiply or even touch the figure of US $ 17 thousand per ton. This will certainly have an extraordinarily positive impact on Indonesia’s trade balance and benefit Indonesian nickel companies.

18.JCI is predicted willonly strengthen around 6300

The Jakarta Composite Index (JCI) fell 2.5% in September and continued to decline in early October. The weakening in September was partly driven by cigarette company shares, which were affected by the government’s cigarette excise tax increase policy. The weakening was also exacerbated by the performance of the banking sector after a review from the debt rating company Moody’s Services which warned of an increased risk of corporate debt burden in Indonesia, which is dominated by the financial sector. Both of these things encourage selling action from domestic and foreign investors. The price-to-earnings ratio valuation was recorded at 15.37 along with the decline in earnings growth expectations in 2019 to around 6-8%. In the fourth quarter, which is generally the performance of the stock market entering a window dressing period, this time it is expected to be more limited, so that the JCI is expected to only move up to around 6,300 – 6,400 at the end of the year.

19. How market react during and afterward Indonesia presidential and minister inauguration in 2019

Generally, the swing over changes simbolized by the changes in IHSG. IHSG represented the total changes in stock market. However, there are many variables that may affect how stock market swing over changes in stock market. It’s not a common issue that the political factor is one of the most influential variables in stock market. The development of a country, is very dependent to who the president is leading it. Hence, Investors truly relate political factor to long term certainty since in Indonesia the presidential election is held once every 5 years. So basically, they want to make sure that they will gain profit after long term investment.

The latest presidential inauguration on the 20th October 2019, the pair of Joko Widodo and Ma’ruf Amin appointed to be president and vice president for the next 5 years until 2024. At that time, 20th October 2019 is Sunday so the stock market hasn’t react yet. On the next days, IHSG reacted with the opening at 6197.711 on 21th October 2019 and closed strengthen to at 6257.944 on 23th October 2019 during the minister inauguration. The strengthen changes occur because from the investor point of view, investors can predict the investment climate that will occur in the next 5 years, so they started to hype the stock market again. Nevertheless, after the occurred up trend, the down trend is happening afterward which opened at 6339.679 on 24th October 2019 and closed weakened to 6179.414 on 12th November 2019. Some analyst think that the weakened take place because there is confusion that occurs in the community because Joko Widodo appointed Prabowo Subianto to become the Minister of Defense, whereas Prabowo was his rival in the presidential election at the same year.

 

20. How Joko Widodo’s cabinet will affect the market 5 years ahead

President Joko Widodo announced his cabinet on 23rd of October 2019 at Merdeka Palace, Jakarta. This 2019-2024 cabinet is called Kabinet Kerja Jilid 2. Investors, both domestic and foreign, are looking forward for the announcement as the market reacts positively even before the announcement. Looking back at 2014, the market also reacted the same, this positive reaction from investors are called the Jokowi Effect. In 2019, Jokowi Effect strikes again, making Indeks Harga Saham Gabungan or IHSG gain strength after the inauguration of President Joko Widodo. IHSG gain 0.11% on Monday, 21st of October 2019 and continue to rise 0.43% on Tuesday, 22nd of October 2019.

The most anticipated announcement for foreign and domestic investors is Coordinating Ministry of Economic Affairs and the coordinated ministries line-up. For this coordinating ministry and coordinated ministry, President Joko Widodo selects very familiar name including Airlangga Hartarto as minister of Coordinating Ministry of Economic Affairs, Sri Mulyani as Minister of Finance, Erick Thohir as Minister of State Owned Enterprise, Agus Suparmanto as Minister of Trade, Agus Gumiwang Kartasasmita as Minister of Industry, Ida Fauziyah as Minister of Manpower, Basuki Hadimuljono as Minister of Public Works and Public Housing, Syahrul Yasin Limpo as Minister of Agriculture, Siti Nurbaya as Minister of Environment and Forestry, Sofyan Djalil as Minister of Agrarian Affairs and Spatial Planning, Teten Masduki as Minister of Cooperatives and SMEs and one non-ministry organization which is Investment Coordinating Board (BKPM) led by Bahlil Lahadalia. Other than economical factor, safety and stability factor of Indonesia is also very important for investors, that’s why Coordinating Ministry of Political, Legal and Security Affairs led by Mahfud MD, Ministry of Defence led by Prabowo Subianto and Ministry of Home Affairs led by Tito Karnavian also played a crucial part in influencing investors decision.

IHSG on 23rd of October 2019, the day President Joko Widodo announce his cabinet, shows a sign of confusion stated by Senior Researcher of Institute for Development of Economics and Finance, Enny Sri Hartarti. IHSG falls 0.02% compared to closing result on 22nd of October 2019 even continued to fall 0.32% in the first 40 minutes since the market open. This confusion is the result of mixed feelings by the investors. Sri Mulyani and Basuki Hadimuljono brings a sense of continuation and consistency for Indonesian economics and infrastructure growth for yet another 5 years. Erick Thohir brings new energy in handling State Owned Enterprise, he is expected to change BUMN drastically in terms of bureaucracy, policy, system and especially deficit in Indonesia’s state-owned enterprise. Bahlil Lahadalia, former HIPMI chairman, also brings a new color to the cabinet, Investment Coordinating Board is expected to reduce unnecessary investment policy, improve Ease of Doing Business ranking from 73 to 50 in the world, compete with neighboring countries in terms of investment quality and other important command from President Joko Widodo. However, Airlangga Hartarto is one reason investors are confused, “he is not the right person to fill the strategic position since he came from a political background” stated by Bhima Yudhistira, economist for Institute for Development of Economics. He further continued that Airlangga Hartarto doesn’t make any breakthrough during his term as Minister of Industry. Agus Suparmanto, Minister of Trade, doesn’t have any great background either. He’s PKB politician, chairman of IKASI (Ikatan Anggar Seluruh Indonesia), and CEO of PT Galangan Manggar Biliton. These experiences were deemed not enough though President Joko Widodo gave him a clear task, to increase export quantity and quality. Same goes with Agus Gumiwang Kartasasmita, he previously elected as member of House of Representatives of Republic of Indonesia three times and chosen as Minister of Social on August 2019. It is quite irrelevant that Agus Gumiwang Kartasasmita held the Minister of Industry position since his previous position are not related enough with Industry. Investors prefer the economic related ministry being held by a professional, not a political/party figure.

Mahfud MD and Tito Karnavian both brings peace and stability for Indonesia’s security. Clear background and tons of achievement. In short, Mahfud MD and Tito Karnavian are both well proven in their field. Former rival and chairman of Gerindra Party, Prabowo Subianto is a surprise in this announcement. Many thought it’s a form of political deal while others said that Prabowo Subianto could actually be the key in handling a radicalist who threatened the safety and security of Indonesia the past 4 years. These 3 figures claimed to be enough in bringing security and stability in Indonesia.

Despite a short fall in IHSG, this doesn’t mean the investors doesn’t trust Joko Widodo’s and his cabinet. Enny Sri Hartarti stated that this response shouldn’t be a benchmark in judging Joko Widodo’s long-term plan in building a strong economic foundation. This response should be answered by Joko Widodo and his cabinet these 5 years especially when dealing with US – China trade war, imported goods from China, complex investment regulation compared with neighboring countries, and future financial crisis. It’s President Joko Widodo and his cabinet’s job to answer these investors doubt. In conclusion, we should see a stable growth in Indonesia in terms of economy led by Sri Mulyani and growth in infrastructure led by Basuki Hadimuljono. There will also be a transformation and improvement for state-owned enterprise led by Erick Thohir, making it very attractive for investors to invest. Investing in Indonesia will be much easier in near future, we can finally compete with neighboring countries. Trade and Industry Ministry are also expected to perform otherwise will be reshuffled since President Joko Widodo warns he has no burden this time around. Safety and stability are also deemed very achievable which is a very important factor. These factors still makes Indonesia very attractive despite problems ahead.

It’s still mystery about what will happen in the stock market future about it, as already mentioned earlier, there are many factors which affect the stock market earlier, some economists think that the predicted global recession in few years ahead will be the main variable to affect stock markets. Furthermore, if we look simply at technical indicators, only stochastic which predicted there will be a future uptrend. However the others technical indicator seemed still neutral.