JAKARTA (TheInsiderStories) — The Indonesian stock market will meet some risks next year, according to analysts. The 2019 elections and global economic turmoil are some factors that can impact the Jakarta Composite Index’s future direction.
Reliance Securities analyst sees that the Jakarta Composite Index (JCI) has historically gotten stronger ahead of Presidential elections. In the 2004 election, the JCI grew 32.85 percent. While in 2009, it rocketed by 90.17 percent. Again, in 2014, the composite index appreciated by 18.29 percent.
“So we expect that in 2019 election, JCI may record higher gain than 2014,” Reliance outlook stated.
But analyst from Samuel Sekuritas Indonesia, Andy Ferdinand, saw that there are some uncertain factors to the JCI, ahead of the election. Those are social issues, security issues and economic policy that will be made by the president-elect.
Other than that, Ferdinand added, Bank Indonesia (BI) will continue to increase 7-Day Reverse Repurchase Rate (7-DRR rate) amid the depreciating currency. Recently, the key interest rate is at 6 percent.
For global factors, the Federal Reserves (Fed) rate is projected to increase by lower than estimated. The United States (US) and China trade tension seems to be looking to continue next year, with less retaliations on each other. This sentiment can create further volatility on the index.
Even so, Ferdinand sees a ray of hope for the Indonesian stock market next year. Amid the uncertainties, the price for several commodities price is predicted to strengthen. The government will also provide more stimulus and subsidies to boost private sectors. Moreover, politics expenditure ahead of the election will benefit some sectors.
While, CSA Research Institute Senior Analyst, Reza Priyambada, assessed that next year the JCI will still be more influenced by global sentiments that are almost similar to this year. First, there is still the potential for trade war along with the attitude which have not yet been softened.
Secondly, the policy plan set out by the Fed to raise interest rates again. Thirdly, a difference of opinion between Trump, who is supported by Republicans and Democrats in the Congress is also likely to occur. This problem arose when Trump asks for a large budget to establish a barrier between the US and Mexico.
The Democrats only approve of a portion of this budget. It is not impossible, Trump’s tough attitude will occur in other policies that ultimately make market players react negatively. There are still more macro sentiments in the US economy. In addition, it will be affected by the performance of US issuers.
Fourthly, is the condition that exists in the European Union (EU). Whether it’s related to Brexit, the settlement of the budget of various troubled EU countries, economic and industrial growth, to the steps of the European Central Bank (ECB) which will begin reducing the stimulus program.
The reduction will be positive from the ECB’s side as it would be good for the economic growth of EU countries independently but, not necessarily in the eyes of market players who would likely assess the European’ economic growth still need financial assistance from the ECB. These conditions can affect the pace of European stock exchanges and also the movement in the value of their currencies.
The weakening of the euro will open opportunities for strengthening the US dollar, and the dollar index so that it can negatively impact the movement of Asian currencies, including the rupiah.
Fifth, is the development of the Chinese economy. This development is in line with the attention of market participants because considering that China is not only part of large and influential countries, it is also Indonesia’s main trading partner which has the largest trade value among other countries. Therefore, if something negative happens to the Chinese economy, the effect on of the market participants tends to be negative.
Sixth is from within the country. The release of various key internal macroeconomy indicators has always been a concern of market participants. Usually market participants look at the release of quarterly economic growth, inflation, trade balance and foreign exchange reserves. In addition, the market also links it to the movement of the rupiah exchange rate.
Seventh is sentiment and news from the issuers. Release of various issuers’ performance developments is important for market players because they can find out whether their performance is increasing, stagnating, or declining.
Reliance Securities forecasted that the JCI can close in 6,246.81, with 25.31 times of next year’ price earning (P/E). The prediction was calculated by measuring Indonesia’s Gross Domestic Product, import and export, loan, Rupiah against Dollar, and 7-DRR rate.
Meanwhile, Samuel Sekuritas projected 16.1x P/E, and the JCI can reach 6,800 in 2019. The recommended sectors to collect are bank, automotive, consumer, and plantation.
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