The Great Dissonance: Part 1

The widespread of COVID-19 has brought a severe impact to the present world, with no exception to the economic sector. Ever since the first two quarters in 2020, there has already been more than a hundred thousand infections, with a fatality of around 4,320 people in Indonesia. A province such as DKI Jakarta has conducted a Large-Scale Social Distancing (PSBB) procedure to prevent the contagious level of Covid-19 that made this capital city once looked like a dead city. This was undoubtedly making an economic wheel that did not run well, and of course, will decrease the national GDP. According to Badan Pusat Statistika (BPS) data, Indonesia's Gross Domestic Product (GDP) experienced a contraction for the second quarter with 5,32% compared to 2019 (y-on-y). For many countries that experienced a contraction, International

Monetary Funds (IMF) expect Indonesia's GDP to contract by around 4%. While on the other hand, The Bank also believes that there is no economic growth in 2020. Furthermore, this weary situation leads to a sudden halt to the economy, massive unemployment numbers, and the collapse of the tourism and hospitality industry.

Referring to the capital market in Indonesia, due to the global oil price war between Russia and Saudi and substantial foreign outflows in March 2020, The capital market in Indonesia occurred the worst bear market in history, which resulting Indonesia Stock Exchange (IDX) suspending their activity and causing a loss of 2,000 trillion rupiah from the beginning of the year. However, the bear market only lasts for a short time as it has climbed surely throughout the second quarter after hitting bottom at the middle of March 2020 with 29%. This happened after the emergency fiscal and monetary policy applied by Indonesia's government, including a unique debt monetization policy, the lowest central bank rate since 2016, and extensive consumption stimuli to offset the economic shock, although only less than a fifth of the total 695,2 trillion rupiah has been realized. Furthermore, Indonesia will take a step to use Quantitative Easing (QE) to face the situation. Indonesia's Minister of Finance, Sri Mulyani, stated that massive state spending was needed to shore up the economy with the private sector in retreat after weeks of PSBB. While the fact showed that on (1/18), Sri Mulyani stated that there is no possibility for Indonesia to rebound in the first quarter and was predicted that it will happened in the second quarter as the consumer demand would increase due to Eid holidays. In addition, Sri Mulyani also said that, Indonesia would not implement this bank financing for a long-term period as it was forecasted to leave a 6.4% fiscal deficit.

With still an existence impedance of COVID-19 that could worsen Indonesia's economic condition, investors highly hoped that this pandemic does not have that much impact as if the first half of 2020. Although the quick rebound occurred in the stock market, the daunting reality of the COVID-19 spread still haunts the nation's stability and growth. The number of patients infected with COVID-19 in Indonesia continues to grow until Friday (1/29), with data showing that the total number of COVID-19 cases in Indonesia reached 1,051,795 people, starting from the first patient's announcement on March 2, 2020. The breakthrough vaccination program for COVID-19 had proceeded, starting with President Jokowi receiving the vaccine's first injection on Wednesday (1/13). Knowing that the number of vaccines is severely limited and a massive population in Indonesia, the herd immunity that the nation wants to establish will take quite some time. This great dissonance between the market and the nation's truth made several questions; What is currently driving asset prices to grow, 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 soon? And how will the biggest, global-scale turmoil in recent history change the capital market landscape for years to come?

Sources:

BPS

Detik

Financial Times

The Jakarta Post