Last year’s global stock market rally and uncertainty about the economic recovery has many retail investors wondering whether it is time to shift to other asset classes.
The Jakarta Post has asked investment professionals in Indonesia for their views on how to arrange a portfolio for the year ahead.
While there is no silver bullet and opinions vary, diversification is generally considered key to preparing for uncertain times. Stocks, bonds, gold and other assets all have a place in a well-balanced portfolio, but the share of each may be adjusted depending on market developments and investors’ personal risk appetite.
Analysts told the Jakarta Post that retail investors should anticipate moves by the US Federal Reserve (Fed), as monetary tightening by the US central bank would affect all types of investment, each with a different outcome.
A further recovery of domestic demand in Indonesia, on the other hand, could justify more exposure to Indonesian stocks, even though these would be considered riskier in the event of Fed tightening.
The emergence of new coronavirus variants would still have an impact on markets, albeit not as terrifyingly as earlier in the pandemic, as much of the risk is already factored into markets now.
PT Panin Sekuritas analyst William Hartanto said on January 12 that retail investors wanting to invest in the stock market could consider commodity-based companies, particularly in the oil and gas, coal and crude palm oil industries.
“Historically, markets would respond to Fed rate hikes by shifting investment to the commodity sector,” William told the Jakarta Post, adding that a Fed rate hike was the single most impactful factor for investors to look out for at this time.
The sectors of consumer goods and manufacturing could be viable options, but retail investors should keep an eye on macroeconomic indicators affecting these two sectors.
For now, these indicators looked to be pointing in the right direction amid the economic recovery following the pandemic, he said, but retail investors were advised to ensure this remained the case further into the year.
Despite driving the Indonesia Stock Exchange (IDX) Composite index last year, tech stocks did not make William’s list. The analyst explained that these stocks had been the IDX’s prime movers since 2020 and were in an overbought phase, resulting in limited scope for increase and a risk of sell-offs.
With regard to upcoming tech listings, William advised retail investors to study the price trend closely rather than relying on hype. He noted that many investors had suffered significant losses in the first e-commerce initial public offering (IPO) last year.
PT TRFX Garuda Berjangka director Ibrahim said on January 12 that retail investors ought to watch out for possible hikes in Covid-19 cases due to the recent Omicron variant, which could disrupt the economic recovery and cause the rupiah to depreciate. This included rising Omicron cases in other parts of the world.
He estimated that the gold price could go as far as $2,000 per ounce or one million rupiah ($69.80) per gramme in 2022, up from around 850,000 rupiah in early January. A dovish Fed stance or growing geopolitical concerns could increase the likelihood of gold to rise.
“We could see Omicron affect the rupiah, which would be followed by rising gold prices [in rupiah],” Ibrahim told the Jakarta Post on January 12 to explain why retail investors should consider gold for investment.
Similarly, Wahyu Tri Laksono, founder of trader community Traderindo, said if uncertainty hit the markets, reduced risk appetite could lead to a shift to risk-averse investments like gold, which might trigger a rise in demand. Alternatively, government bonds and other fixed-income assets could serve the same purpose.
PT Anugerah Sekuritas head of fixed income Ramdhan Ario Maruto said on January 13 that, despite uncertainty in 2022 being lower than before, low-risk assets like government bonds were worthwhile.
He argued that the upcoming Fed tapering and rate hike would trigger a rise in interest rates in many other countries, resulting in yields on financial instruments rising as well.
“Since we are part of the global market, we will be affected as well,” Ramdhan said.
In Indonesia, global rate hikes would trigger an increase in Bank Indonesia’s benchmark rate as well and push up government bond yields in 2022.
He predicted the yield on 10-year government bonds would rise to between 6.7 and 6.8 per cent from 6.41 per cent as of January 12.
Andy Nugroho, financial planner at Advisors Alliance Group Indonesia, said on January 14 that retail investors should also arrange their portfolios in line with their personal risk profile.
An aggressive investor who could tolerate more risk could allocate 70 to 80 per cent of their portfolio to stocks, and the rest to government bonds, gold or fixed-income assets.
“Our economy has rebound; industries have risen, and many analysts are optimistic about the Indonesian stock market. Therefore, those with an aggressive stance could put more in stocks,” Andy told the Jakarta Post.
Moderate-risk investors could allocate around 60 per cent to government bonds, and the rest to fixed-income and balanced mutual funds, which are hybrid funds consisting of equity and bonds.
Conservative investors meanwhile could keep half of their portfolio in government bonds, followed by a quarter each in gold and money market mutual funds.
Financial planner and founder of Finansia Consulting Eko Endarto on January 14 said retail investors might need different approaches based on age.
For those aged 20 to 30, Eko advised a 75 per cent share of high-risk investment products like stocks, followed by 15 per cent in medium risk options like gold or fixed-income and the rest in low-risk assets like government bonds, deposits and money market mutual funds.
For people aged 30 to 50, the portion of medium-risk investment could be upped to 20 per cent, lowering the high-risk share to 70 per cent. He advised people above 50 to opt for 15 per cent and 50 per cent, respectively, for low and medium risk assets, while the rest would go to high risk.
“The younger you are, the smaller the risk is. You could still switch jobs easily or remain fit compared to people aged 40 and beyond,” Eko told the Jakarta Post.
THE JAKARTA POST/ASIA NEWS NETWORK