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Analysts tout stocks, corporate bonds as top picks after Fed, BI rate cuts
Falling interest rates in developed economies should see more portfolio investment flow back into emerging markets like Indonesia, but some sectors stand to benefit more than others, and caution is warranted as fears of a US recession continue to haunt global markets.
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A woman walks past an electronic display showing stock prices on March 13, 2024 at the Indonesia Stock Exchange (IDX) in Jakarta. (Antara/Akbar Nugroho Gumay)
W
ith the recent benchmark rate cuts by the United States Federal Reserve (Fed) and Bank Indonesia (BI) signaling an end to the period of high interest rates, analysts are turning bullish on equities and corporate bonds.
However, they cautioned investors look for stocks with solid fundamentals and high dividends over lingering fears of a US recession in global markets.
The Fed slashed its federal funds rate by 50 basis points (bps) on Sept. 18 to a range of 4.75-5 percent, the first cut in more than four years. The US central bank also hinted at an additional 50 bps cut before the year-end, with another potential cut of 100 bps on the horizon in 2025.
Just hours earlier, BI preempted the Fed’s move by trimming the BI-Rate by 25 bps to 6 percent.
Interest rate cuts generally stimulate economic activity by making loans cheaper for both businesses and individuals. At the same time, reduced yields on safer assets, such as US government bonds, might push investors toward riskier investments with higher returns in domestic and international markets.
Fanny Suherman, retail research head at brokerage BNI Sekuritas, noted that retail investors could seize the opportunity to seek assets offering returns above inflation. She highlighted that stocks in the finance, property and consumer goods sectors could benefit from the back-to-back rate cuts and from next year’s state budget, which is seen to support consumer spending.
“There is a potential for the stock market to reach an all-time high, driven by aggressive buying from foreign investors, as they see positive prospects for Indonesia’s economy,” she told The Jakarta Post on Sept. 25.
