Market Update Bancassurance February 2022
Article / 22 February 2022
Global stock market fluctuated in January, what caused it?
Market fluctuation was dominated by global sentiment. The market was overshadowed by the Fed's communication which indicated that the Fed is open to start raising interest rates in the first quarter of 2022. In addition, US inflation data also continued to increase to the highest level since 1982, which raised concerns that the Fed would raise interest rates more aggressively than expected to tackle the inflation spike.
Unfortunately, this condition of uncertainty was also exacerbated by the long pause in the Fed's communications, from the last communication on January 11 to the FOMC meeting on January 27. This long communication vacuum caused market speculation to become wilder and depressed market sentiment. However, currently market volatility has relatively decreased after the Fed's FOMC meeting confirmed the direction of its monetary policy, thereby reducing uncertainty and speculation in the market.
The Fed's policy direction is becoming increasingly clear towards interest rate hikes cycle. How is stock market potential during The Fed's rate hike cycle?
Interestingly, during the previous few periods of The Fed’s interest rate hikes, US and Asia’s stock market performance was quite resilient. Since 1988 there have been five cycles of the Fed's rate hikes, in 1988, 1993, 1999, 2004, and 2015 and during those periods US and Asia’s stock markets recorded positive performances. In our view, long-term performance of the stock market is influenced more by fundamental factors such as economic growth and companies’ performance outlook. Also, if we take a look at it from a different perspective, interest rate hikes can be seen as a signal that the economy is strong and is ready to face interest rate hikes.
Regarding economic conditions, how is the resilience Asia economy in the face of the Fed's rate hike cycle? Could high volatility such as the 2013 taper tantrum happen again?
Macroeconomic condition of Asian region now is more solid than it was in 2013 which gives it better resilience to face The Fed’s interest rate hike cycle. Macroeconomic indicators such as real interest rates, inflation, current account balance, and foreign exchange reserves are in a healthy position so as to support economic stability and market sentiment. Asia also plays an important role in global supply chains as a producer of raw materials, commodities and manufactured goods, benefiting from increasing global demand as economies reopen. IMF forecasts growth in global trade volumes to reach 6% in 2022, above the pre-pandemic average of 3.4%. Therefore, the flow of funds is expected to remain supportive for Asian region which can support financial balances stability of countries in Asian region.
Speaking of investing in offshore markets, which regions do you think have attractive investment opportunity this year?
We see attractive opportunities in Asian region especially in ASEAN, India, and China. Economic growth in ASEAN and India is estimated to be higher this year than last year, contrary to global trend of economic normalization. This is a supportive macro condition for stock markets in the region. ASEAN and India are also benefited by the trend of manufacturing diversification from China following the US-China trade tensions. Some of the potential sectors within the region are automotive sector in Thailand, IT in Malaysia, electric battery supply chain in Indonesia. In addition, ASEAN and India also have great digital economic potential, where there are many unicorn technology companies that are going public and have attractive potential due to the large regional market scale.
China also offers attractive investment potential, where after reforming various sectors in 2021, the government's focus will shift towards supporting economic growth stability. This shift of focus has the potential to open the tap for stimulus and monetary easing in 2022, thereby providing unique investment opportunities amid interest rates hike trends in other countries. The Chinese government's accommodative posture has begun with the cutting of benchmark interest rate and bank required reserve ratio at the beginning of this year.
What is the potential of Indonesia’s stock market this year? What are the catalysts and risks for the market?
From a top-down perspective, Indonesia offers attractive potential because in the economic recovery cycle, economic growth in 2022 has the potential to be better than 2021. In terms of economic resilience, Indonesia's condition is also quite supportive, with indicators of macroeconomic stability such as real interest rates, inflation, current account balance, and foreign exchange reserves showing improvement so that this condition can make Indonesia stronger in facing US monetary policy normalization. Then, as previously mentioned, Indonesia also has attractive structural growth potential from the digital economy sector and renewable energy supply chains sector such as electric batteries. Therefore, we expect strong foreign appetite for Indonesia’s stock market, as seen from foreign investors net purchases in the stock market which reached USD425 million in January, despite the highly volatile global market conditions. The main risks that need to be considered are the development of pandemic conditions, especially related to the response to mobility restriction policy from the government, and changes in monetary policy that are sudden and beyond market expectations.
What is your portfolio strategy for Indonesian stocks amidst the current high volatility of financial market?
Market fluctuations due to global macroeconomic factors are an unavoidable market risk. We address this condition by focusing on investing in quality company stocks that capture Indonesia's structural growth potential, such as in e-economy sector, green economy, and sectors that benefit from economic recovery conditions such as financial sector. In addition, we also continue to monitor market conditions and may change strategies at any time if there are changes in fundamental conditions.
Seeking Seeking α is a monthly communication released by PT Manulife Aset Manajemen Indonesia (MAMI). Presented in the Question and Answer format, Seeking α is aimed at presenting the views of MAMI's forward-looking investment experts, directly before you, MAMI's professional investors.
This month, we feature updated market commentaries from Portfolio Manager, Andrian Tanuwijaya.
After starting his career as an Equity Analyst in a securities company in 2011, Andrian joined PT Manulife Aset Manajemen Indonesia, where he started off as an Equity Analyst until currently takes charge as Portfolio Manager. Andrian has acquired Deputy Investment Manager license from the Financial Services Authority (OJK) since 2012. When he was a college student at Surabaya University, he was chosen to represent Indonesia at the 4th Annual CFA – Global Investment Research Challenge in Manila, Philippines. Andrian acquired Bachelor of Economics degree, majoring in Financial Management from Surabaya University.
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