Thursday 7 November 2013

WAITING FOR FOMC MEETING MAKES INVESTORS PANICKED



The United States Central Banks, the Federal Reserve (The Fed), will hold a Federal Open Market Committee (FOMC) meeting on October 30, 2013. Many stock market analysts predict that withdrawal of stimulus reduction (tapering) will likely be realized. But, it makes traders panicked because market condition is shrouded in uncertainty. Because the delay of the stimulus withdrawal by the Fed reflects an unstable economic conditions, including in the United States.

It means that there is no guarantee that tapering will not be done by The Fed. But, once The Fed delays stimulus reduction, it will be responded positively by capital market participants to take buying action on shares that have been discounted by foreign investors.

Capital market authority, the Indonesia Stock Exchange (IDX), reminded investors not to get too concerned about tapering. Investors are expected to be able to do activity and see the potential that exists in the capital market. This is a concern for investors, so many investors wait and see to return to the capital market.

“investors are getting bored so they have to move on and just wait for the resolution of tapering”, said President Director of IDX, Ito Warsito.

Ito did not deny the issue of volume of daily stock transaction in August to September. He argued that historically, during this period many investors are on holiday. So, indirectly, he dismissed that issue of low transaction volume in August-September due to the tapering issue.

IDX recorded that the average volume of daily transaction is still much higher than previous year, i.e. Rp5.6 trillion. “We targeted that by the end of the year, average volume of daily transaction can reach Rp6.6 trillion, driven by liquidity from October to November which will increase compared to August-September”, Ito said.

The delay of stimulus reduction or economic tightening (tapering off) does not necessarily make a move toward a positive trend. Given the growth after the decision is only because traders are over reactive. Many stock market analyst predicted that the fluctuation is still very powerful.

Analyst of PT Buana Capital, Alfred Nainggolan, said that the US government will take a conservative policy to begin reducing stimulus this year as it can affect the global stock market and cause contraction in the market. No exception for the country which is still vulnerable.

Tightening of the US economy is a sentiment, which in a short term, can give a surprise in the Indonesian capital market. Because, to date the are no incoming funds to replace the amount of quantitative easing (QE).

“Nothing can replace Q3, where at the time of QE entry in 2009-2012 can trigger index growth from level 2,000 to 5,000. It means that the fund is huge”, he said.

The impact of economic tightening conducted by the US government triggers the release of foreign funds in the capital markets (capital outflow). Although currently it is still in abeyance, in fact it reduces the rate of JCI and cuts capitalization in the market.

For now, he suggested that traders focus on growth of performance or fundamentals of issuers. In addition to the economy which will still be growing, the stock market remains an attractive place for investment for the long term and will grow positively in the future provided that the authorities continue to boost the number of investors and issuers who can enter the market.

Earlier, Chairman of the Financial Services Authority (OJK), Muliaman H. Dadad, once said that his party still took cautious steps toward the impact of The Fed’s daecision to the domestic financial industry. “We still have to be cautious”, he said. His party would continue to focus on the deepening of capital markets and supervision. In addition, OJK also remained focused on the application of prudential and risk management principles. 

Business News - October 18, 2013

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