JCI set to touch 5,000 next year: Forecast

Padangekspres.net-Indonesia’s benchmark index will touch 5,000 by the end of 2013, backed by the country’s strong consumer confidence and robust domestic consumption that is set to bolster strong financial performances from the country’s listed companies, a study from Citi Securities Indonesia has concluded.

The securities company, a subsidiary of the US-based financial giant Citibank, made the prediction by using a bottom-up approach. The method calculated the share-price targets of Indonesia’s biggest listed companies and adjusted the index by the likely fluctuation trend of their share prices.


The calculation also added Jakarta Composite Index (JCI)’s upside potential, the percentage by which analysts or investors expect the index to increase. Citi Securities Indonesia said that JCI’s upside potential currently stood at around 18 percent.

“Actually, even by touching the 5,000 level, [by the end of next year] our index is yet to fulfill its true potential,” Citi Securities Indonesia’s head of research, Ferry Wong, said on Monday.

“Our upside potential of 18 percent is not yet optimal. Over the last few years we have actually grown by 24 percent-28 percent.”

The JCI would see higher upside potential if the government eventually raised the prices of subsidized fuel that could ease pressure on the current account deficit, consequently prompting more positive sentiment among both domestic and foreign investors, according to Ferry.

Besides Indonesia’s strong economic fundamentals, the study expected JCI to draw more capital inflows because of the flurry of quantitative easing, a form of monetary stimulus that has been implemented by central banks in Europe and the US to spur their stalling economies.

The European Central Bank (ECB) recently declared that it would provide “unlimited quantities of money” to buy government bonds belonging to eurozone’s debt-riddled members.

US central bank, The Federal Reserve, has also unleashed another form of quantitative easing, the third issuance since the 2008 financial crisis. It will inject up to US$40 billion a month into the market by buying mortgage-backed securities, starting this month.

“It [the quantitative easing] will have a very positive impact on our index,” said Ferry. “Because of the quantitative easing, there will be more US dollars circulating in the global market, investors holding dollars will consequently invest their money in countries that have strong growth.”

The JCI slid 1.7 basis points to 4,255.28 at Monday’s closing. The index has risen by 10.35 percent since the beginning of the year, making it the third-biggest performer after Singapore’s FTSE (15.37 percent) and Hong Kong’s Hangseng (11.7 percent), according to Nurhaida, a commissioner for capital market supervision at the Financial Services Authority (OJK).

“Our capital market is still attractive, especially for foreign investors,” Nurhaida said on Monday. “Nevertheless, we need to boost the role of domestic investors, because the imbalance of proportion between domestic and foreign investors in our capital market can make the country prone to risks of capital outflow.” 

Foreign investors account for 43 percent of JCI’s trading value with year-to-date transactions in 2012 worth Rp 336.2 trillion ($35.16 billion), according to data from the Indonesia Stock Exchange. 

Commenting on Citi Securities Indonesia’s forecast, Sinarmas Asset Management analyst Jeff Rosenberg Tan gave a more conservative outlook for the JCI, predicting that the country’s benchmark index would hover at around 4,100-4,600 next year.

“[The JCI’s performance] depends on how the European crisis resolves. Any meaningful resolution to the US fiscal cliff at the end of the year and lastly, how Chinese and Indian economies are doing. [...] external factors matter more than internal ones,” he wrote in a text message sent to The Jakarta Post. (sat)