Maybank Wealth Talk – Market Outlook 2020 dari PT Manulife Aset Manajemen Indonesia (MAMI)
Source : Katarina Setiawan - Chief Economist & Investment Strategist
We have just gone through 2019 that was filled with global uncertainty. Entering 2020, what do you think is this year’s main global economic theme?
Last year global economy experienced economic slowdown where manufacture and trade activity weakened. For 2020 in our point of view global economic growth will stabilize supported by the subsidence of US-China trade tension, as well as monetary and fiscal policy that will stay accommodative.
Global economic main theme in 2020:
In all, those factors have the potential to create a more conducive situation for global market in 2020.
Last year, Developed Markets outperformed Asia’s markets. How about this year, will Developed Markets perform better again?
Both still have fairly good potential, especially in the midst of expectation for economic stabilization and global trade activity improvement. But after Developed Markets recorded high performance in 2019 (US S&P 500 index increased 29% in 2019), we need to be more elaborate in choosing sector and stock. Meanwhile Asian region stock markets offer more attractive valuation, and higher earnings growth potential at 10-12% (vs. 8-10% in Developed Markets). Other than that trade activity expectation can profit company performance in Asia which is the “world factory”.
Early this year market was shocked by the increase of US-Iran geopolitical tension. What is your take in this?
We will keep watch on the development of US-Iran conflict. As of now it is too early to assess the impact of this conflict to the economy because we don’t know yet if this conflict will escalate or subside soon. If the conflict escalates, the main risk to the economy is oil price hike. Iran is located at Hormuz strait which is an important route in oil industry logistics, where around 21% of world oil consumption is supplied through Hormuz strait. Oil is one of main expenses components for companies in several sectors, therefore oil price hike will affect profitability. Also oil price hike can affect inflation which is one of the main factors for global central bank to decide on interest rate level.
Switch to domestic economy, in 2019 Indonesia economic growth was relatively stagnant. How is Indonesia economic outlook in 2020?
There were many factors that hampered Indonesia economy in 2019, such as the weakening of global trade activity, and from domestic side we were also shadowed by election period which resulted in the slowing down of investment activity. Government performance was also affected by the long time span between election and Presidential inauguration.
In 2020, we think Indonesia economy will gradually improve. The more conducive global condition will encourage interest to invest in developing countries markets which will also profit Indonesia. Also Indonesia economy in 2020 will gain positive impact from interest rate cut by BI in 2019. The impact of interest rate cut to the economy usually didn’t happen instantly but more gradually.
Bank Indonesia cut interest rate 4 times in 2019. Will this trend continue in 2020?
Looking from several indicators, Bank Indonesia still has room to cut interest rate. Indonesia real interest rate is currently one of the highest among region countries, which gives room to Bank Indonesia to further cut its interest rate. But it seems BI will keep Indonesia real interest rate higher compared to region countries to sustain the attractiveness of Indonesia assets. Therefore the movement of interest rate in the future will depend on global and regional interest rate trend. Clearly, the direction of BI policies are expected to be remain accommodative in 2020. So although interest rate won’t see much decrease, BI can still do macroprudential policy easing to encourage credit growth.
Stock market performance stagnated in 2019 with JCI grew 1.7% while bond market grew more than 10%. How do you see Indonesia stock and bond market in 2020?
We are positive about the potential of stock and bond market this year. 2019 was a supportive period for bond market encouraged by interest rate cut trend and low inflation rate. In our view this supportive condition will continue in 2020. BI interest rate is predicted to stay accommodative, inflation is controllable and Rupiah exchange rate is maintained. Also global bond market condition is also supportive to Indonesia bond market. Currently around USD12 trillion of global government bond offer negative yields, which will potentially encourage investment in the bond market with high yields such as Indonesia.Not only for bond market, we also have constructive view on Indonesia stock market. After disappointment performance in 2018 and 2019, stock market starts to show a more positive outlook. Changes mainly come from global market side with the subsiding tension between US and China, also expectation in global trade activity improvements. This more positive market condition can give positive impact on Indonesia stock market performance. Also from domestic side, market predicted better issuers’ earnings this year in 10-12%, compared to 3-5% in 2019. Domestic political condition is also more conducive after the election and cabinet formation period is over. The plan to reform tax and labor policies by the government to attract foreign investments can be a catalyst factor to improve Indonesia stock market attractiveness.
What are your suggestions to investors as we enter 2020?
New year can be an ideal moment for investors to reevaluate their investment goals and portfolio performances. Without neglecting market condition and outlook, it is important for us to focus on the investment goals that have been set and to make sure our portfolio allocations still correspond with our investment goals. Many studies show that asset allocation plays a major role in producing optimum long term portfolio return, even compared to the role of market timing. Therefore, make sure we set our investment goals, allocate assets, diversify, and rebalance, because all those factors are interrelating components for the success of an investment portfolio.
Chief Economist & Investment Strategist
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