The “Don’t do what the crowd is doing” philosophy turned out to be a good strategy when it came to investing in Indonesia’s stock market this year.
Those who believe in this investment strategy could be among those who bought shares when other investors sold stocks in the middle of the crisis that hit the market late last year. If you did so, you are certainly a big winner this time around.
The Composite Price Index, the main barometer of prices on the Indonesia Stock Exchange (IDX), plummeted by nearly 50 percent down from 2,745.82 at the end of 2007 to 1,355.40 by the end of 2008 due the global financial crisis which hit the local exchange that October.
Signs of the global economic recovery and an improvement in the performance of local companies have significantly improved the trading mood since April this year. Prices of major companies especially those involved in mining and plantation operations have since increased significantly.
The bullish trading of commodities shares also sent a positive sentiment to other stocks. The result was a sharp increase in stock prices.
The index closed at 2,534.36 on Wednesday at the last trading of the year, an 87 percent increase from 1,355.40 at the start of the year.
If the index is used as the yardstick for calculating investment returns, investors who bought the stocks during the crisis in October, 2008 until the first quarter of this year will get a rate of return of at least 87 percent from their equity investments. Congratulations to the investors who dared to brave the rough seas.
These returns certainly represented a pay-off for the risks they faced, and more importantly, are much higher than other investments could offer. Even investing in gold, the returns would not be as big as those given by equity investment. Gold, for example, provided a rate of return of up to 50 percent in the same period.
Gold prices rose to US$1,216.75 per troy ounce, 50 percent higher than the average price at the start of the year. In Jakarta, the gold price is now about Rp 350,000 per gram. The comparison shows this year’s returns from equity markets are exceptionally high.
However, for those who bought their stocks before the market collapse in October, last year, they have not yet been able to recoup their losses resulting from the crisis, especially if the increases in the prices of the stocks they held were equal to or lower than that recorded by the index.
But for certain stocks, exceptionally, the price increase since the crash has reached as high as 800 percent, far higher than the rise in the index.
The bullish sentiment in the stock market also positively affected mutual funds, which have become an important investment alternative.
There are mainly four types of mutual funds registered in the IDX. They are equity funds, balanced funds, fixed income funds and protected funds.
Compared to the other types of mutual funds, the equity funds – which are entirely invested in stocks - mostly provide rates of returns bigger than the average annual gain from stocks.
Investors, who bought equity funds from experienced and smart fund managers, could pocket a rate of return above 125 percent. Although certain equity funds could have provided these high returns, the average returns given by this type of fund was about 85 percent, but still far higher than the rise in the exchange’s price index.
Fortis Ekuitas fund, for example, recorded an increase of 113 percent in its net asset value (NAV) or the price of the fund per unit along with the Pratama Saham fund (171 percent), the Sidana Saham Syariah fund (122 percent), the Panin Dana Prima fund (135 percent) and the Trim Kapital Plus fund (154 percent).
This type of fund gave bigger returns compared to the other four. The balanced funds are ranked in second place in term of returns provided, the fixed income funds in third place and the protected funds in fourth place.
The balanced funds which are invested in both stocks and fixed income instruments such as time deposits, government and corporate bonds, mostly provided an annual return of between 40 percent and 80 percent.
Some, however, gave an annual return of above 100 percent, almost equal to those given by the equity funds.
Semesta Dana Maxima, for example, recorded an annual return of 118 percent, Pratama Berimbang (130 percent), Fortis Pesona (101 percent), Prosper Balance (111 percent) and MRS Alex Kresna (106 percent).
Balanced funds which place the larger parts of their investment in stocks have also been giving returns at a level equal to that of many equity funds.
Unlike the equity funds and balanced funds, the fixed income funds gave a lower rate of return this year as the larger portion of their investment was put on low yielding investment options such as time deposits, government and corporate bonds.
This year, their average rate of return has been between 12 and 20 percent. Although these returns are lower than those provided by the equity funds and balanced funds, they are still far higher than the average 7 percent interest offered by time deposits.
The fixed income funds which provided returns above the average included Surya with a rate of return of 56 percent, Pundi Reksa Dollar (20 percent), Meda Dana ORI 2 (22 percent), Pramita Platinum B (29 percent) and MRS Bond Kresna (25.9 percent).
Meanwhile, the protected funds, which guarantee investors at least their initial investment, if held for the contractual term, gave quite low returns. Most of the protected funds registered at the IDX, give their investors nothing at all (in terms of gains). This low return will likely result in the withdrawal of investors as other risk- free investment options such as time deposits and government bonds offer higher yields.
With their exceptionally higher returns, stocks and equity funds should become the investments of the year. But, will the bull market return again in the Indonesian stock market next year?
Some stock market analysts believe bullish conditions will continue, although it will not be as good as this year.
“We are bullish on Indonesia,” Arief Wana, director of equity research of PT Credit Suisse Securities Indonesia, told Bloomberg News recently. “As we believe that Indonesia is entering into a higher growth phase, the companies’ current much stronger balance sheet should be able to sustain a high rate of return-on-equity,” he said.
Credit Suisse estimates that the IDX’s Composite Price Index will climb by 32 percent next year.
According to the Indonesian subsidiary of the Swiss bank, the index will rise to 3,300 by the end of 2010, led by consumer, infrastructure and resource stocks.
With such an upbeat forecast, the equity funds and balanced funds will remain attractive options for investment, next year. But, don’t forget, the risk is always there, except if you choose to invest in the protected funds.
