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Window dressing, vaccine hopes buoy JCI back to 6,000
The JCI concluded its trading at 6,012.52 on Monday or 1.25 percent higher than Friday’s closing.
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nvestors’ optimism for a better economy following the creation of COVID-19 vaccines has bounced the Jakarta Composite Index (JCI) back to a psychological benchmark of 6,000 on Monday, after a deep market rout earlier this year.
The main gauge of the Indonesia Stock Exchange (IDX) concluded its trading at 6,012.52 on Monday or 1.25 percent higher than Friday’s closing, shaving off some of the index losses to 4.56 percent since the beginning of the year.
Stocks of privately owned Bank Central Asia (BCA), cigarettemaker PT HM Sampoerna and technology and media company PT Elang Mahkota Teknologi led the JCI's surge on Monday.
“The invention of the COVID-19 vaccines supported the market’s bullish movement on hopes of a better economic situation next year,” Artha Sekuritas vice president Frederik Rasali told The Jakarta Post via text message on Monday.
Global markets reached new highs in November following news that vaccines developed by United States drug makers Pfizer and Moderna had a high efficacy rate in preventing COVID-19 infection. The United Kingdom started to administer the vaccine for medical frontliners and senior citizens last week, with Canada planning to follow suit this week.
In the meantime, Indonesia received 1.2 million doses of a COVID-19 vaccine produced by China’s Sinovac Biotech. The vaccine is still awaiting efficacy results and emergency approval from the Indonesian Food and Drug Monitoring Agency.
News of vaccine development also restored foreign investors’ confidence in Indonesian stocks. Foreign inflows were recorded at US$3.68 billion during the period of October to Nov. 18, Bank Indonesia (BI) data shows. However, the JCI still recorded a total of Rp 46.33 trillion ($3.3 billion) in net foreign sell as of Monday as investors dumped risky assets earlier this year over coronavirus fears, resulting in market crashes in March and April.
Frederik also said that the JCI’s rally toward the end of the year was also supported by end-of-year window dressing, a strategy often used by mutual fund and portfolio managers to improve a fund’s performance at year-end. In this strategy, fund managers will usually dump underperforming stocks and hunt for better-performing ones to prop up their fund performance reports before presenting them to clients or shareholders.
Although the JCI has gained 21.69 percent over the past six months, Frederik remained cautious about the index move at the end of the year as he projected the main gauge to reach only 5,800.
“Investors might be profiting from the surge happening in the past few months,” he said.
He also suggested that investors remain on the lookout for COVID-19 vaccine development and other countries’ policies on stimulus and economic recovery as it would affect Indonesia’s economic fundamentals, too.
Frederik maintained a cautious projection for the index to reach 6,400 next year as he expected vaccination programs to face logistical issues.
“We believe that vaccinations cannot be completed globally in the first quarter of next year, so we think that the evidence of economic recovery can only be seen by the second half of 2021.”
Separately, Koneksi Kapital analyst Alfred Nainggolan expressed optimism that the vaccine’s logistical issues would not affect the JCI’s movement next year, as investors were expected to focus more on the vaccine’s efficacy rather than its distribution.
Should the vaccines be proven successful in preventing COVID-19, the index may reach 6,700 to 6,800 in 2021, he said.
“[US president-elect] Joe Biden’s decision to end the trade war could also play a part in catapulting the JCI to reach the target next year.”
As for this year, Alfred expected a limited boost for the index because of a lack of additional positive sentiments.
Investors, he said, had priced in all the positive sentiments that could support the market to move upward this year. Given the circumstances, he projected the index to conclude this year’s trade at 5,800 to 6,000.
Alfred also warned investors to remain vigilant over the COVID-19 infection rate in Indonesia as it would determine whether or not the government or local administrations would reimpose strict large-scale social restriction (PSBB) to curb the spread of the virus.
“This could prove to be detrimental to the market because it would reverse the rally in the past few months,” he said.
