Modest Start

In early 2024, the JCI exhibited stability, contrary to the expectations of a January Effect that many investors anticipated. While global major indexes, especially in developed countries, reached unprecedented highs, the JCI remained relatively stagnant. Two factors contribute to the subdued state of the domestic equity market: a preference for higher flows into developed market equities due to anticipated changes in monetary policy and concerns about political risks associated with the upcoming Indonesian election. During the January FOMC meeting, the Federal Reserve unanimously opted for the fourth consecutive time to maintain the benchmark Federal Funds Rate (FFR) at 5.5%. While acknowledging a positive economic environment, the Fed underscored the necessity for additional evidence of a sustained decline in inflation. Despite this cautious stance, the committee assesses that the risks to achieving employment and inflation goals are gradually balancing. This implies that the Fed’s statement strives for a delicate equilibrium by relinquishing the hiking bias while affirming a reluctance to ease in the immediate future.

Conversely, the domestic market is preoccupied with election-related news, creating a degree of uncertainty for investors. Nevertheless, we view this political risk as temporary and advocate for a longer-term perspective, considering Indonesia’s potential for a brighter future under a new government. Consequently, investors are encouraged to diversify their equity asset classes, as Indonesia is poised for improved growth compared to the previous year. Moving forward, the government plans to disburse more social assistance to bolster purchasing power. Additionally, Bank Indonesia is likely to reduce the banking reserve requirement, stimulating banks’ loan growth as a precursor to a potential benchmark rate cut later in the second semester of this year, following the example of the US FFR cuts. Sectors that appear favourable in our portfolio include banking, consumer goods, retail, and property, aligning with anticipated macroeconomic conditions.