Stock Market Indonesia: Prognosis Jakarta Composite Index in January
Last year the benchmark stock index of Indonesia (Jakarta Composite Index) fell 12.13 percent to finish at 4,593.01 points on 30 December 2015 amid severe global uncertainty due to looming tighter monetary policy in the USA and the rapid economic slowdown of China. Today, the Indonesia Stock Exchange will have its first trading day of the new year. What do we expect from the performance of Indonesian stocks in January 2016?
We expect to see a positive performance of the Jakarta Composite Index in January as there are several reasons that justify optimism (despite the persistent challenging environment as commodity prices, led by crude oil, are still heading downward, while investors remain cautious ahead of the release of Chinese economic data).
Firstly, the January effect - referring to the tendency of stocks to rise in the first month of the year - may be felt by Indonesian stocks in 2016. However, if felt, it may not be too strong as Indonesia's benchmark stock index rose relatively strongly (despite quiet trade) in the last two weeks of December. Usually the January effect follows a drop in stock prices in December (as investors create tax losses to offset capital gains).
Secondly, there is optimism that the year 2016 will become a better year, economy-wise, than 2015. Indonesia failed to achieve most of its economic growth targets in 2015 due to global and domestic factors. However, 2016 is expected to become a better year as the US Federal Reserve has finally decided to raise its key Fed Fund Rate (in late 2015), implying that a large portion of uncertainty has been removed from the markets. Although it is expected that there will be more US interest rate hikes in 2016 (albeit gentle and gradual ones), and which can cause capital outflows from emerging markets including Indonesia, we do know now that the Federal Reserve is convinced about the quality of US economic recovery.
Indonesia's GDP growth is estimated to have slowed to 4.7 percent (y/y) in 2015, the slowest growth pace since 2009. However, most national and international institutions see Indonesia's GDP expanding to 5.3 percent (y/y) in 2016. Moreover, as inflation is under control (around 3 percent y/y) and the current account deficit in a healthier condition, Bank Indonesia may cut its key BI rate from the relatively high level of 7.50 percent, hence giving room to accelerating economic growth. However, Bank Indonesia is still concerned about the fragile rupiah ahead of further US interest rate hikes (and perhaps further devaluation of China's yuan) and therefore Indonesian monetary policy may remain somewhat tight.
Later today, Indonesia's Statistics Agency (BPS) will release the official December 2015 inflation figure. Calendar year inflation (January-December 2015) is estimated at 3 percent (y/y), well below the government target of 5 percent, and even below the central bank's target range of 3.5 - 5.5 percent.
Thirdly, due to worldwide low crude oil prices, Indonesia will see lower energy prices per January 2016 (fuel and electricity prices). Lower energy prices will boost people's purchasing power.
Performance Jakarta Composite Index:
| Year | Jakarta Composite Index year-on-year growth |
| 2015 | -12.13% |
| 2014 | +22.29% |
| 2013 | -0.98% |
| 2012 | +12.94% |
| 2011 | +3.20% |
| 2010 | +46.13% |
| 2009 | +86.98% |
| 2008 | -50.64% |
| 2007 | +52.08% |
Source: Indonesia Stock Exchange
After trading opened in Jakarta, the Jakarta Composite Index - in line with the trend in Asia this morning - immediately fell into red territory. By 09:22 am local Jakarta time, the index was down 0.32 percent to 4,578.49 points. Meanwhile, the Indonesian rupiah had depreciated 0.60 percent to IDR 13,913 per US dollar (Bloomberg Dollar Index) by the same time.