Stock markets in Indonesia have been particularly volatile in recent weeks, and this has left many investors wondering about whether or not the rally that started last October is still viable and ready to continue. Last month, the MSCI Indonesia Index (which trades under the stock symbol EIDO) took a large drop - from well above the 6,500 mark to below 6,000. From a percentage perspective, a move like this can generate significant losses for those that bought into Indonesian stocks while they were still at elevated levels.
MSCI Indonesia Index (EIDO):
But, for the most part, these declines were based more on panic selling rather than any real changes in the underlying fundamentals. For the most part, we have not yet seen significant declines in the earnings outlook for most Indonesian companies. So, this suggests that there is really no reason to start selling your Indonesian stock just yet. In fact, the relatively consistent performance in the earnings outlook for Indonesian companies suggests that these latest declines could actually be used to establish new long positions in regional stock markets.
If you are a conservative investor, the old adage that it is best to “buy low, and sell high” seems more appropriate now for Indonesian stocks that it does for most other regions of the world. It should be remembered that stock markets in US and China have seen relatively strong performances over the last few years and this adds to the supportive outlook for Indonesian stocks, as well. So, if we continue to see strength in US and Chinese economic data, investors should remain watchful for the “spillover effect” that will likely occur in Indonesia. Of particular interest is the monthly jobs figure in the US, which tends to be a very good indicator of potential spending by US consumers.
If these numbers can continue to show strength, it will suggest that there will continue to be strong markets for Indonesian exporters. This could prove to be exact what the Indonesian market needs to start resuming its previous uptrend and correct some of the losses that have been posted in recent weeks. So while it might seem that though stocks in Indonesia are likely to experience continued disarray, it should be remembered that wave of panic selling can often generate quick momentum and build on itself in an erratic fashion. Savvy investors that are looking to capitalize on these types of moves can often buy stocks at much cheaper prices once these types of moves occur.
Investors that are looking for emerging market stock exposure should continue to consider all of these factors as important, as they could ultimately be what generates favorable gains in stocks as we head into the second half of the year.
Jakarta Composite Index: