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Indonesia’s Capital Market Predicted to Continue to Grow

Indonesia's Capital Market
Indonesia's Capital Market Predicted to Continue to Grow

Indonesia’s capital market is projected to remain optimistic, despite the challenges of economic turbulence coming from national macroeconomic conditions.

Financial Educator Manager Sucor Sekuritas Hendry Wijaya explained that good macro conditions are shown by Indonesia’s inflation rate at 4.69 percent with core inflation of 3.04 percent. The inflation target of Bank Indonesia (BI) this year is 3 percent +/- 1 percent, meaning the maximum core inflation could be 4 percent and still be within BI’s observation limits.

“I estimate the possibility of inflation in 2022 to rise in the five to seven percent range,” said Wijaya in the Investment Talk event themed “Opportunities Amid Turbulence” organised by D’ORIGIN Financial & Business Advisory and IGICO Advisory on Sunday 4th September 2022.

With rising inflation, he said, the benchmark interest rate has the potential to rise up to 100 basis points (bps) or 1 percent from 3.5 percent to 4.5 percent this year.  

As for now, it is only at the level of 3.75 percent, having risen 25 bps some time ago. This had an impact on Indonesia’s government bond yields, which strengthened.

“The increase in interest rates will be responded to by an increase in bond yields. If bonds rise, our bond yield spreads in the US and Indonesia will widen. Then it will invite foreign investors to enter Indonesia, capital inflow. The rupiah should be more stable,” he said.

Indonesia’s economic growth in the second quarter of 2022 rose by 5.44 percent. He also compared the increase with other countries, such as the US which decreased 0.6 percent, the EU which only rose 0.6 percent, China which saw a rise of 0.4 percent, Japan rose 2.2 percent, Singapore decreased -0.2 percent, and Brazil rose 1.2 percent.

Indonesia’s economic growth, he continued, was strong enough to cushion the impact of rising interest rates. On the other hand, the national trade balance has been in a surplus for 29 consecutive months since the prices of Indonesia’s mainstay commodities have shot up again.

This will support the Indonesian economy because the prices for exported commodities are much higher than those imported so that the terms of trade benefit Indonesia.

Currently, 30 percent of the JCI market cap is supported by the banking or financial sector.  Loan growth in the banking industry also grew rapidly, by 10.71 percent.  

If inflation rises 5-7 percent this year and economic growth reaches 5 percent, it means that Indonesia’s nominal gross domestic product (GDP) will grow in the 10-12 percent range.

Head of Equity Berdikari Investment Management Agung Ramadoni estimates that Indonesia’s GDP is stable at above 5 percent. This stability is based on several factors, including fund managers who are in a position to have large cash funds, the equity market has not reacted negatively to the contraction of US GDP for the second month in a row, and the availability of cash in the domestic market is still high.

“This is based on sales data in the domestic market such as data on car sales figures that have returned to pre-pandemic levels, retailers sales data that has continued to improve in recent months, domestic cement sales data which is still slightly positive compared to last year,” explained Agung. “Lastly, sales data from the property sector is also starting to return to normal levels as before the pandemic. This indicates that the Indonesian economy is quite strong and is still on the right track in the recovery phase after the pandemic.”

Chief Analyst of Stockology Muhammad Hamzah said Indonesia’s economic condition now will push the JCI more positive. JCI needs a break at the level of 7,258. 

“In my opinion, the level of 7,258 should be broken in the middle of this month or even this week. Because here there is a Fibonacci time zone that is approaching, ” he said.

Sectors to Watch

Hamzah said that there are currently four leading sectors with significant growth since early 2022, namely energy at 65.33 percent, industry at 27.95 percent, transportation at 20.41 percent, and infrastructure at 10.21 percent.

Interesting sectors to note are industry, non-cyclicals, and basic materials. On the other hand, sectors that need to be avoided include healthcare, property, technology, transportation, and cyclicals.

“For priority sectors, finance is still quite attractive, because we are talking about the market correlation with foreign flows. Foreign flow in the JCI is mostly played in the finance sector. 30 percent of Indonesia’s market cap is in finance.  Finance is still quite attractive. There is an energy that is certain that these months the energy of the driving catalyst is strong. And there is also infrastructure because there is a new sentiment, namely IKN (Indonesia’s new capital city),” he said.

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