Central banks triggered index rise

JAKARTA. Monetary stimuli provided by the Central Banks of Japan, Indonesia, and the United States of America (the US) have brought positive sentiment for Jakarta Composite Index (JCI). Ahead of the end of third quarter of 2016, JCI was jacked up to the level of 5,380. The positive sentiment is expected to increase JCI to 5,500 by the end of this year.

On Wednesday (21/9), Bank of Japan (BoJ) held the interest rate and yield of government bonds with 10-year tenure at the level of 0%. BoJ also continues to purchase assets, such as government bonds.

Meanwhile, The Federal Reserve or The Fed (American Central Bank) has decided to maintain the benchmark interest rate in the range of 0.25%-0.50%.

However, pressure over The Fed to increase the rate becomes stronger recently. The Fed is urged to raise the rate if the performance of the US’ economy does not improve.

Analyst at Asjaya Indosurya Securities William Suryawijaya said that the central banks’ policies have brought positive sentiment to JCI.  Under this condition, William predicted that JCI has potential to reach the level  of 5,524. William even estimated that JCI may hit 6,186 at the end of the year.

Director of Investa Sarana Mandiri Hans Kwee said that market has long predicted that The Fed would not increase the rate in September, but in December. Hans predicted that JCI has potential to hike to 5,500 by the end of the year. He also predicted that the index may experience correction, mainly during the meeting of The Fed leaders in December.

However, Hans believes that The Fed will not increase the rate in December due to the election. He expected that The Fed will just raise the rate in the next year after the formation of the new government.

Hans added that domestic factor, such as the tax amnesty revenues shortfalls will bring negative sentiment for JCI.

Analyst at Recapital Securities Kiswoyo Adi Joe assumed that The Fed and BI (Indonesian Central Bank) stimuli will only affect JCI in a short term. In a long term, Kiswoyo estimated that the realization of tax amnesty will be significant factor in determining the JCI movement. If government fails to meet the tax amnesty revenues target, JCI may be standing in the range of 5,200-5,300. Conversely, JCI will hit 5,800 by the end of 2016 if realization of tax amnesty meets the target.

If JCI steadily stands at the level of 5,500, at the end of 2016 the index has potential to increase by 19.75% compared to 2105. As of Thursday (22/9), JCI increased by 17.14% and recorded the highest increase among Asian stock exchanges.

According to Kiswoyo, the slight increase in JCI reflects market volatility. Therefore he suggested investors to buy blue chips shares.

(Muhammad Farid/Translator)