Indonesia Stocks Exchange (IDX) illustration.

JAKARTA (TheInsiderStories) – The returns on the equity market this year could outpace returns from fixed income instruments on the back of recovering global commodity prices and better consumer spending, according to Commonwealth Bank.

Considering the increase in the performance of the Jakarta Composite Index (JCI) in 2017 which was largely contributed by the large capital stock increase and followed by the good performance of Indonesia stock and bond market in early 2018, Commonwealth considers that the allocation of larger investment portion in the equity asset class is an objective option for mutual fund investments throughout March.

Market corrections that have occurred in the last few days deepened due to the market response to the Indonesian government’s policy of increasing subsidies, providing an opportunity for investors to re-evaluate their investments portfolio.

The government’s policy to increase the subsidy is a precise move, considering domestic consumption is not fully recovered yet with the release of the growth rate of household consumption in 2017 which only increased by 4.95 per cent YoY, down 0.05 per cent compared to the previous year of 5.01 per cent.

Foreign and domestic markets are currently influenced by two major factors that have a major impact. The first is the intention of the US government to raise tariffs on steel and aluminum imports to 25 per cent and 10 per cent.

However, the protectionism regulation done by the U.S government will give negative impact on market participants. This perhaps will create an inter-state tariff war that eventually harms the countries themselves.

Despite the US Federal Reserves’ plan to increase benchmark rates three times this year, Bank Indonesia will still maintain interest rates at 4.25 per cent.

The U.S Treasury yield has reached 2.94 per cent of its highest level in the past 5 years provides a strong indication that market participants are beginning to anticipate US monetary tightening.

This plan of monetary tightening by the Fed should be seen as a positive sign of the better data on US economic growth followed by the falling unemployment rate.

In line with the optimistic global economy continues to grow. At the same time, economic growth in Indonesia is also predicted to increase to 5.3 per cent in 2018.

The Fed’s plan to raise interest rates expected in March 2018 should be viewed positively by the market. Behind the fact the measure is a monetary tightening, this shows the Fed’s confidence in a recovering and solid US economy facing an interest rate hike.

“With the current market correction due to sentiment, this condition provides momentum for investors especially for potential investors in the equity asset class, now is the most rational time for investors to start adjusting their portfolio investing in stock and bond markets based on their risk profile in 2018,” said Ivan Jaya, Head of Wealth Management & Retail Digital Business Bank Commonwealth.

For investors with moderate risk profiles are steady to face additional potential risks and yields, mixed mutual fund options that have a combination of stocks and bonds can be an option. For investors with aggressive risk profiles that are ready to deal with any possible investment outcome, stock mutual fund options are the preferred option.

Email: elisa.valenta@theinsiderstories.com

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