Insights from an Enigmatic Market Ecosystem

The rapid spread of COVID-19 has changed the world. With one hundred thousand infections and 4,320 deaths that have been linked to the virus in Indonesia as of July 2020, it has upended lives and destroyed growth. The IMF projected that Indonesia’s GDP would contract by 4%, while the World Bank forecasted no economic growth in 2020. In a pandemic-induced slump, the country faces a tough time weathering bleak prospects of a sudden halt to the economy, massive unemployment numbers, and the collapse of the tourism and hospitality industry.

In March, prompted by substantial foreign outflows and a global oil price war between Russia and Saudi Arabia, the Indonesian capital market saw a bear market never before encountered. With such extreme drops that IDX had to suspend market activity, it lost two thousand trillion Rupiah of its market value from the beginning of the year.

However, the decrease was short-lived and it climbed surely throughout the second quarter, rising 29% from its lowest in mid-March. Fuelled by emergency fiscal and monetary plans including a unique debt monetization policy, the lowest central bank rate since 2016, and extensive consumption stimuli to offset the economic shock, investors flocked to the market hoping to ride a rebound.

Indonesia is not in the clear yet. Less than a fifth of the total 695.2 trillion Rupiah contingency stimulus have been realized. Government debt will balloon in light of a forecasted 6.4% fiscal deficit. Most worryingly, Indonesia has become a COVID-19 hotspot with rocketing numbers of infection, prolonging economic inactivity. The disconnect between an early capital market climb and the daunting reality in our country can be seen clearly.

This dissonance puts the future of Indonesia’s investment world in question. What is currently driving asset prices to rise, with questionable earnings forecasts and economic indicators? Will the market ever recover to its pre-pandemic value, or will we encounter a financial bubble burst in the near future, as international equities reach record levels? How can we as prospective investors sift through the uncertain market for profitable investments? And finally, how will the biggest, global-scale turmoil in recent history change the capital market landscape for years to come?

These questions represent the backdrop of our theme; the erratic nature of what lies ahead calls for the need of better understanding of our market circumstances.