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Jakarta Post

Stock returns to beat bonds next year: Analyst

  • News Desk

    The Jakarta Post

Jakarta   /   Thu, October 13, 2016   /  12:10 pm
Stock returns to beat bonds next year: Analyst A panel at the trading floor of Indonesia Stock Exchange building in Jakarta shows the trading data of stocks and Jakarta Composite Index (JCI) . (JP/Wienda Parwitasari)

With Bank Indonesia (BI) seven-day repo rate at a low level, which drives many banks to lower their deposit rates, stocks become an attractive investment choice, an analyst has said.

Mandiri Sekuritas fixed income analyst Handy Yunianto said stocks could provide greater return potential than bonds next year if the economy keeps improving.

“There is a possibility that stocks would outperform bonds next year. Our team projects that the Jakarta Composite Index (JCI) will hit 6,150 in 2017,” he said on Wednesday, adding that the return from stock investments is estimated to be at approximately 12 percent.

Although bonds have recorded a return of 19 percent this year – the average historical return stood at about 12 percent - because of the declining yield, it is predicted that the return would drop to 9 percent due to an expected stable repo rate next year, Handy added.

“The return from bonds in 2017 most likely would not repeat this year’s return. We forecast that the average bonds’ yield to decline by about 50 basis points (bps), so the total return expected from bond investments will be 9 percent,” he said.

However, Handy said that the world’s fragile economic condition over concern that the European Central Bank is considering a QE ‘Taper’ and the potential increase of US Federal Reserve fund rate could lead to high market volatility.

In this situation, investors could choose to invest in mutual funds, he concluded. (win/bbn)

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