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Market Sell-Off Following Fed’s Rate Hike

In regards to the agitating 7.9% inflation in the US recorded in February and hitting a 40-year high Consumer Price Index (CPI) in March of 2022, The Federal Reserve Board has conveyed initiatives to raise interest rates by 0.5%. Although this demarche is perceived as a fairly strong move after triggering the highest hike in two decades, the Fed has alerted investors to expect the rates to soar even higher in months to come. Following this trade-revamping policy, a great number of investors have sold out prominent parts of the market, this resulting in a sell-off that ultimately prompted Wall Street’s unavoidable decline. Tech stocks were among the biggest losers from the bump-up. The Nasdaq Index fell sharply by 3.2% to settle at 11.3, following its underwhelming first quarter performance. With less than one-third of the second quarter remaining, the index is presently down 21% for the year. In addition, Asian and European markets declined in tandem with the US market. Asia's stock markets have fallen to their lowest level in nearly 15 months in response to the Federal Reserve's action. Hong Kong's benchmark Hang Seng index fell by 3.8%, while shares on the Shanghai Stock Exchange were down by 2.2%. On top of that, the Fed’s decision also negatively impacted the cryptocurrency market. The global crypto market cap decreased by 7.5% to US$1.67 trillion on Friday (5/6). Its in-group leader Bitcoin (BTC) fell as much as 8.4% to US$36,410 while Ethereum (ETH) was trading lower by 6.8% at US$2,743.

On Monday (5/9), the Indonesia Composite Stock Price Index (IHSG) tumbled more than 4% reacting to The Fed’s interest rate policy. The move by the U.S. central bank to boost the interest rate by 50 basis points has rendered global financial markets unpredictably volatile. The Indonesian capital market reacted rather late due to the closed market during the Eid al-Fitr long holiday. The market concluded the day with a composite index value of 6,909, or a 4.4 % decline. Even though IHSG had just recently cleared the psychological barrier of 7,000 in March of this year, it fell sharply as a result of the declines in several large-cap or blue-chip stocks. The decline in the index was also influenced by the decision of foreign investors to realize a net sell of shares of up to Rp2.47 trillion in the regular market. The first stock that had fallen was PT GoTo Gojek Tokopedia Tbk (GOTO), which dropped 6.6% to Rp254. PT Bank Rakyat Indonesia Tbk (BBRI) is next on the list, with a decline of 5.3% to Rp4,610. The banking sector stock with the highest market capitalization, PT Bank Central Asia Tbk (BBCA), is in third place, with a price drop of 4.9% to Rp 7,725. Almost all sectoral indexes backed the great IHSG decline from its all-time high. IDX Technology Sector was printed as the index with the most significant decline. The Financial Sector IDX sank 4.4%, followed by the Infrastructure Sector IDX, which corrected 3.4%, the Health Sector IDX, which corrected 2.8%, and the Raw Goods Sector IDX, which fell 2.8%, and the Industrial Sector IDX, which corrected 2.5%. Meanwhile, the Energy Sector IDX increased by 0.7%. Adding to that, the IDX Transportation & Logistics Sector soared 2% in the first session, making it the sector with the largest gain.

In the midst of this market and economic downfall, experts have predicted that IHSG will bounce back with an upward trend in the near future. Research analyst at Artha Sekuritas Indonesia, Dennies Christopher, predicts that IHSG should be back up very soon. Backed up by the data that big-cap companies had been oversold and are now undervalued, which is what value investors have been waiting for. Adding to that, companies will soon release their quarterly reports, which often strengthens the market and even further if the reports are shown to be positive. Global markets have also started to stabilize which is a good sentiment to also preserve the Indonesian capital market. This recovery will be backed up by almost all sectoral indices, with the energy sector leading as global tension and the energy crisis still goes on. Followed by the consumer, transportation, and logistics sector due to the recent Eid al-Fitr holiday in Indonesia. On the other hand, the financial and technology sector which has been hit the most by the sell-off is still on a downtrend as most believed that it was overvalued at the time. However, when these two sectors finally meet a certain price that the market perceives them to be at, investors will start to rush back in and increase their stakes in these sectors. In brief, the Fed's policy has proven to strongly impact IHSG’s movement. Nevertheless, history has shown that the Indonesian market will slowly bounce back aligned with its economic growth.

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