Shareholders of Renewable Energy Player Barito Renewables Energy in for a Roller Coaster Ride
The stock market experienced turbulent times in May 2024. Indonesia’s benchmark stock index (Jakarta Composite Index, or, IHSG) in particular showed some volatile behavior, with daily increases and declines of more than one percent taking turns. However, the overall trend was negative in May 2024, as the IHSG shed 3.6 percent from a level of 7,234.20 points at the end of April 2024 to 6,970.74 points at the end of May 2024.
The two key matters that are affecting global markets, and which have been affecting markets for the past two years now, are interest rates and inflation in the world’s top economy, the United States.
As is widely known, the US Federal Reserve has been keeping its interest rates at 23-year highs for much longer than markets (initially) expected. Whereas markets were earlier expecting three interest rate cuts in 2024, there has now even emerged some doubts whether the Federal Reserve has room to cut its key rate at all this year.
The dilemma the Federal Reserve is facing involves US inflation as this has remained stubbornly above its target of 2.0 percent year-on-year (y/y). By keeping borrowing costs high, it aims to curtail demand in US society, hence price pressures should ease. But because inflation has difficulty to reach the desired target, the Federal Reserve does not want to ease its monetary policy yet.
This in turn means that other central banks also need to keep interest rates high. For example, if Indonesia’s central bank (Bank Indonesia) would cut its benchmark rate, then we might see some significant capital outflows from Indonesia to the US where investors would then be able to enjoy risk-free assets that carry (roughly) the same interest. And so, Bank Indonesia has to keep a lucrative margin to attract investment into Indonesian assets, thereby supporting the value of the rupiah rate, although this has the negative side effect of somewhat putting the brakes on economic growth.
Other topics originating from the United States that put pressure on stock markets is the conviction of former US President Donald Trump over a hush money payment scheme he allegedly helped facilitate ahead of the 2016 US presidential election. His supporters claim that it is a political trial aimed at reducing Trump’s chances of re-election in the upcoming US election in November 2024, while conservative analysts in fact argue that the case boosts Trump’s chances in the election. As such, there is a degree of chaos at the top political level of the US that is not a good environment for portfolio investors.
Meanwhile, other issues that are still making investors quite cautious are the threat of escalating violence in the Middle East (Israel-Hamas war) and in Eastern Europe (Russo-Ukrainian war).
Rising Demand for Renewable Energy Players?
The energy transition that is being pushed by the West (through politics and media), which includes environmental, social and governance (ESG) scores that encourage companies to conform themselves to specific Western ambitions, is a phenomenon that helps to raise demand for companies active in renewable energy. And indeed, if renewable players are going to be in full control of the global energy supply in a few decades time, then it is certainly worthwhile to invest in these companies today.
An example that deserves attention is Barito Renewables Energy. In May 2024 share prices of this company (listed on the Indonesia Stock Exchange) skyrocketed, even though its corporate earnings are not that impressive. So, what is happening here?
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