A panel on the trading floor of the Indonesia Stock Exchange building in Jakarta, shows the trading data of stocks and the Jakarta Composite Index (JCI) . (JP/Wienda Parwitasari)
This year’s presidential election may have seen investors adopt a wait and see approach but investment managers say they should not hesitate, as there are some attractive assets to buy even before April’s poll.
With Indonesia in a political year, many investors are choosing to hold back on investing to wait for the result of the presidential race. However, political analyst Yunarto Wijaya said the wait and see period this year would last longer than for previous elections.
“This year’s presidential campaign period runs for six months, the longest in history,” he said on Thursday during a press briefing in Jakarta. “This may cause investors to wait and see longer than previous years.”
During the previous three elections in 2004, 2009 and 2014, the campaign period was divided in two, as the legislative and presidential elections were held separately. However, this year the elections will be held simultaneously on April 17.
Aldian Taloputra, a senior economist from Standard Chartered Indonesia, said the elections would make private investors more cautious.
“Private investors are continuing the trend of being more cautious during this year as they have always been during previous election years,” he said.
However, he said, the cautiousness of real private investors might not be shared by portfolio investors as global monetary policies were moving toward a more favorable condition this year.
Standard Chartered chief economist for Southeast Asia and South Asia, Edward Lee, said after the United States’ Federal Reserve hiked its benchmark rate four times last year, it was less likely the economic superpower would further increase its policy rate.
Although the US’s unemployment rate has declined, the Republican Party’s loss during the mid-term election and the projection of slower economic growth were making the Fed take a dovish stance toward rate hikes in 2019, he added.
“We predict the Fed will only hike its rate two times this year and that will likely happen in the third and fourth quarters of this year,” he said.
In the meantime, Aldian said, Bank Indonesia may only increase its benchmark rate one time this year as a response to the Fed’s move, making the rupiah exchange rate more stable this year compared to 2018.
Such conditions, coupled with Indonesia’s current low inflation rate, will ensure bond market investors enjoy high yields with a more stable economic situation.
“Based on these conditions, we would suggest investors to invest in bond instruments this year,” he said.
Similarly, Schroders Indonesia CEO Michael Tjoajadi said recently the high rate trend would make investments in fixed income instruments such as bonds more attractive in 2019.
He also added that the equity asset class would also become more attractive this year as the Jakarta Composite Index (JCI) had a history of positive performance during election years.
Based on the statistics, during presidential elections in 2004, 2009 and 2014, the JCI recorded positive full-year growth of 44.56 percent, 86.98 percent and 22.29 percent, respectively.
The fact the last three elections had a positive impact on the JCI’s performance, coupled with historical data showing that the equity index has never experienced continuous declining growth for two years, saw Sucorinvest Asset Management director Jemmy Paul recommend investors to invest in equity this year. He said he expected the JCI to reach 6,800 to 7,000 by the end of this year.
Specifically, he recommended investors to invest in the banking sector this year as banks’ performances typically improved as long as the country’s economy was in a good and stable condition.