How do you think 2021 economic condition will be?
We see 2021 as the year of recovery supported by global vaccination that will be the key to normalizing economic activity. In January IMF revised up 2021 economic growth projection from 5.2% to 5.5% supported by vaccine availability that is earlier than previously expected. Economic improvement potential is also supported by monetary and fiscal policies that are still accommodative. Interest rate is projected to be maintained on low level and large scale asset purchasing program (quantitative easing) will also still be maintained so that liquidity level is still high and will support economic recovery. This condition dynamic has the potential to produce conducive atmosphere for stock and bond market.
Many countries issued large stimulus, will this create inflation pressure which could push central banks to increase interest rate?
We think inflation will still be within manageable level this year and will not push central banks to tighten their policy. Inflation in semester I-2021 is projected to increase due to low base factor in semester I-2020, but inflation will potentially moderate in semester II-2021. Global unemployment level – including in Indonesia – has not yet returned to full employment level so that stimulus issued does not give high pressure to inflation. Currently, stimulus is more to support purchasing power, not as a booster to expenses that can cause inflation.
Stock and bond market recorded negative performance in January, what are your comments on this condition?
Fundamentally, economic data release in January is still consistent to market expectations, so we think the weakening in January was not caused by fundamental factor change. Market volatility in January was more likely caused by technical factor, in which market has posted consecutive strong performance in October-December, so it was prone to profit taking. In February Indonesia economic growth data will also be released, and issuers will begin to release financial statements for Q4-2020, so these can also be factors for market to consolidate and digest the data releases first.
During this pandemic the role of retail investors in stock market are increasing. Will this be something to worry about, especially after Gamespot stock phenomenon in US that caused volatility in US stock market?
The increase of retail investors participation happened all over the world in 2020. Probably because more activities were done from home, availability of information and online trading platform made it easier for people to invest in stock market. We think the increase of people’s interest to participate is a positive thing, since this will support the deepening and growth of capital market. The more investors participate, the more efficient market mechanism will be, and more resilient to the risk of foreign fund outflow from market. On the other side, educating investors also becomes an important factor to emphasize the importance of investing based on analysis and not only following the trend. There’s a risk of herd mentality that could cause the increase of short term market volatility if investors only follow the trend and not conducting good analysis.
Covid-19 cases in Indonesia increased early this year. Does this condition affect your outlook on economic recovery this year?
Pandemic handling is one of the risks that need to be paid attention to. Significant increase of case might cause lockdown that will have negative impact on economic recovery. But on the other side, we see that vaccination program has started, and Indonesia has taken good measure by diversifying vaccine source that will minimize the risk of vaccine production delay. Therefore we positively see that vaccination program can be widely conducted by the government and will mitigate the risk of Covid-19 case increase.
What is your take on bond market this year? Is there attractive prospect for bond market after recording strong performance in 2020?
Bond market prospect is closely related to macroeconomic condition, especially related to interest rate, inflation, and Rupiah exchange rate stability. Bond market historically recorded good performance on low interest rate and inflation period. We think macroeconomic condition dynamics this year will still be supportive for bond market, in which interest rate is predicted to stay low and inflation will be on manageable level. Also we see potential of increasing interest from foreign investors on Indonesia bond market, because Indonesia is a country with investment grade rating that offers high bond yields that will attract foreign investors amidst the era of low interest rate today. Investor can consider the option to invest on bond market if they want investment instruments with lower volatility than stock market.
Amidst increasing people’s interest to invest on stock market, have you any suggestions for investors who want to start investing in stock market?
Some basic principles new investors need to pay attention to:
- Conduct good financial planning before start investing. Plan what expenses we need ahead and when we will need that fund, avoid using funds for short term needs to invest on stock market.
- Get to know the stocks you want to buy and do fundamental analysis, don’t buy stocks because others do, or due to mere suggestion.
- Monitor the fundamentals of the stocks we own. Prospects of a stock can change due to change in industrial trends or internal changes in the company.
- Investors can utilize equity mutual funds if they don’t have the time and capability to manage their own portfolio. Equity mutual funds are managed by professional investment managers who consistently monitor the latest market condition..
Seeking α is a monthly communication released by PT Manulife Aset Manajemen Indonesia (MAMI). Delivered in a Question and Answer format, Seeking α is intended to present the views of MAMI investment experts who are forward-looking, directly in front of you, MAMI professional investors.
This month we present the latest market comments from Chief Economist & Investment Strategist, Katarina Setiawan.
Chief Economist & Investment Strategist
Katarina joined PT Manulife Aset Manajemen Indonesia (MAMI) on July 1st 2013. Katarina has acquired Deputy Investment Manager from Bapepam-LK (Capital Market and Financial Institution Supervisory Agency) on April 30th 1999 number KEP-28/PM/IP/WMI/1999. She has more than 20 years of experience in the financial industry and stock market. Before joining MAMI, Katarina worked at Kim Eng Securities as Research Director. Previous to that Katarina worked as Director at IBAS Consulting, Director at Omni Nusantara, and Supervisor Consultant at Arthur Anderson & Co. Katarina holds Master of Business Administration degree from Indiana University, Bloomington, USA.
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