Cruising The Wave

In April 2024, the domestic equity market experienced different global market headwinds. Initially, investors were pleased with the rally from the previous month before took a long holiday in early April 2024. However, upon the return, investors faced a significant market correction. Several factors contributed to the downturn in the equity market. Notably, US inflation in March 2024 reached 3.5% yoy, surpassing the consensus expectation of 3.4% and deviating from the long-term target of 2% yoy. The Federal Reserve faced a dilemma whether to tighten monetary policy further to combat inflation or adopt a more accommodative approach by cutting benchmark rates in 2024. Consequently, expectations regarding Federal Reserve rate cuts for the year had to be recalibrated. Initially anticipated for mid-year, the rate cut is now expected to occur later, pending further confirmation from the Fed that the elevated rate needs adjustment. Geopolitical tensions in the Middle East also had an impact on the market. The escalating conflict between Israel and Iran caused anxiety, especially as commodity prices, including oil, approached $90 per barrel. Investors feared a resurgence of inflation, leading to speculation that the Fed might adopt a hawkish stance. However, despite ongoing geopolitical risks, the escalation eventually subsided.

The recent expectation shift in the high Fed rate period resulted in other currencies depreciating against the US Dollar, including the Indonesia Rupiah. Fortunately, Bank Indonesia took prompt action, utilizing various tools, including raising the benchmark rate by 25 basis points to 6.25%. As a result, the currency stabilized at around IDR 16,200 per US Dollar. Bank Indonesia’s pre-emptive and forward-looking policies aim to maintain stability in exchange rates and inflation.

Despite global uncertainty, Indonesia’s economy remains fundamentally stable. The long holiday in April could serve as a catalyst for economic growth in the second quarter, driven by increased consumption spending. Additionally, rising commodity prices should help maintain a trade surplus. Overall, our outlook remains constructive for the economy. The market correction may encourage investors to adopt a more optimistic outlook and consider entering the market following a robust rally in the first quarter of 2024.