Where to put your money in 2006<\/p>\n
Frank van Lerven
\nJakarta<\/p>\n
It is never easy and straightforward to answer the question
\n"where to put your money?". Certainly right now, with the year
\n2005 ending and 2006 around the corner, it is a very interesting
\nquestion as regards the Indonesian financial markets!<\/p>\n
Will the bull run that the Jakarta Stock Exchange (JSX) has
\nenjoyed for an unprecedented 3-1\/2 year period come to a halt?
\nAnd worse still, turn into a steep bear-drop, as has happened so
\noften in the JSX's 28-year history?<\/p>\n
Will fixed-interest markets experience another crisis, caused
\nby interest rates rising further and investors cashing out of
\nbonds, opting for time deposits instead?<\/p>\n
Or will the JSX build on its resilient and strong finish of
\nthe year (at the time of writing the JSX has reached an all time-
\nhigh) and bond prices go up again, because interest rate hikes
\nhave peaked or are close to peaking?<\/p>\n
I will come straight to the point. I predict that the JSX, now
\ntrading at 1150, will reach 1300 by the end of 2006 and one-year
\ntime deposits, now at 12 percent, will drop to under 10 percent
\nby the 2006 year end.<\/p>\n
* Speculators (people who can afford to lose all the money
\nthey have invested): Continue with your investment in a
\ndiversified JSX portfolio or broad-based JSX fund. You can stay
\nfully invested (with this speculative money). Being invested in a
\nJSX group of stocks is as good a bet as any. You can add more
\nmoney if you want to.<\/p>\n
* High-risk, high growth investors (people who want growth,
\ncan tolerate steep downturns, but do not want to lose their
\nshirts): stay invested and perhaps add more. However, decide now
\non a JSX level at which, if the market starts to drop, you will
\nsell and take your profits.<\/p>\n
* Medium-risk investors (people who are interested in
\nmoderate, solid growth without too much volatility), take your
\nprofits, if you have made profits in the JSX over these last 3
\nyears, and park this money in a 12-month deposit account earning
\n12 percent. If my prediction is right, the capital you leave in
\nthe market will still pick up all the growth of the JSX and the
\nprofits taken will earn 12 percent, a very nice return.<\/p>\n
* Low-risk investors (people who do not want volatility but do
\nwant to have their capital protected): have a maximum of 10
\npercent invested in the JSX, and keep the rest in fixed-interest.
\nCertainly the JSX is a very volatile market and should either be
\navoided by low risk investors or be participated in with only a
\ntiny amount of their available funds, whatever the prospects for
\nthe JSX may be.<\/p>\n
Any low-risk investors who, unaware of the level of volatility
\nin the market, happen to be invested in the JSX market for
\npercentages larger than 10 percent, should take their money out,
\npat themselves on the back for their luck and invest in fixed-
\ninterest only.<\/p>\n
How do I arrive at forecasts for the JSX to reach 1300 and
\ninterest rates to drop under 10 percent by the end of 2006?<\/p>\n
Firstly, the Indonesian government is doing a sufficiently
\nsuccessful job of keeping inflation in check so that the end of
\nthe interest rate rise cycle is close. Also, oil prices will not
\nrise above the US$70 level (a very important factor for
\nIndonesia's level of inflation). In fact, oil prices may come
\ndown (currently they are trading at just under $60).<\/p>\n
Secondly, the appetite of international investors will still
\nbe there in 2006. This is a vital factor for the JSX, as 70
\npercent of the trading is done by foreign investors. Confidence
\nis slowly building again in the international business community
\nhere, as one can hear from a number of the International Chambers
\nof Commerce.<\/p>\n
Although it is not primarily businesses investing in Indonesia
\nthat fuels the JSX (this growth comes mainly from large
\ninstitutional investors, such as emerging market funds and
\npension funds), this investment does matter from a psychological
\nperspective. Institutional investors do pay attention to the
\ngeneral investment climate in Indonesia, considering economic,
\nsocial and political factors. International investors will also
\nlike the inclusion in the cabinet of well-respected people, such
\nas Boediono, and more generally the progress, albeit slow, that
\nthe new government led by SBY is making.<\/p>\n
Thirdly, at average price-earnings ratios of around 9,
\nIndonesian stocks are not over-valued. Domestic buying of
\nIndonesian stocks may well start to pick up again when interest
\nrates, at some point in 2006, start to come down.<\/p>\n
Lastly, the global investment climate in 2006 will be fairly
\nbenign. Although the JSX tends to run its own course, a
\nfavorable global investment climate in 2006 is a positive factor.<\/p>\n
Are there developments which can turn this bullish scenario
\ninto a disaster? Yes, there are plenty. One of the main
\nindicators to look for is the price of oil. The Indonesian
\neconomy is highly sensitive to the oil price, both on an economic
\nand a social level. Whenever the government is forced to raise
\nthe price of fuel, there is social unrest.<\/p>\n
Readers, you have my advice about where to put your money. Now
\nwe come to the next part of my advice: how to weigh my words, or
\nthose of any "expert" making forecasts about the financial
\nmarkets and advising about short-term investment strategies.<\/p>\n
There is no proof that the price evolution of financial
\nmarkets over a 12-month period can be predicted with any degree
\nof accuracy, absolutely none! In the U.S. investors now look back
\nat more than 100 years of history of trading in stock and bond
\nmarkets (compared to Indonesia's 28 years) and an enormous amount
\nof research has been done to determine whether short-term
\nmovements in stock prices, such as those over one-year periods,
\ncan be predicted. The conclusion remains: it is just not
\npossible!<\/p>\n
Sometimes, financial writers refer to the stock market as "Mr.
\nMarket". Actually this suggests quite an appealing comparison.
\nThousands and thousands of analysts spend their time trying to
\npredict what Mr. Market's next moves will be. A psychological
\nassessment might say that Mr. Market clearly has his own mind in
\nan almost pathological manner. Brilliant or mentally ill, when it
\ncomes to being outguessed, Mr. Market beats them all: analysts,
\nnewsletter writers and investment gurus alike.<\/p>\n
So, why do we busy ourselves with will happen with the markets
\nin the New Year? The answer may be quite simple: we are people!
\nWe like to imagine, dream, guess, challenge against the odds,
\navoid the anxiety of not knowing and...we like to have fun! For
\nmany of us it is boring just to accept that the markets cannot be
\npredicted, much more fun "to have a go at it".<\/p>\n
Here are some facts. Having reached a level of 1160, the JSX
\nis trading at an all- time high.<\/p>\n
This is a stock chart showing the JSX index from the start of
\ntrading in 1982 until mid-December 2005. Although this chart
\ntells us nothing about future movements, it does demonstrate the
\noverall level of volatility and the great run that the market has
\nhad over the last 3 1\/2 years.<\/p>\n
We live in a time when we can be constantly bombarded with the
\nlatest financial news, hot tips, analysis, talk show gossip and
\nso forth. There is certainly enough information out there. It is
\ngood to take all of this with a grain of salt.<\/p>\n
And this leads me to my last tip for the year 2006 for The
\nJakarta Post reader:<\/p>\n
Enjoy the excitement that can come with listening to
\n"financial experts", whether in seminars, on the Net or on TV,
\nand reading articles (including this one), but always take very
\ngood note of your own sense of things, what your own "nose" tells
\nyou,<\/p>\n
and consider that the chances are that things will never be as
\ngood, or as bad, as the experts want us to believe.<\/p>\n
The writer is CFP and FPC qualified financial planning
\nprofessional.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/where-to-put-your-money-in-2006-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}