The Fed's plan shakes JCI

JAKARTA. Jakarta Composite Index (JCI) was lower after the close on Wednesday (14/9). During the last three days, JCI have experienced correction by more than 1%. On Wednesday, JCI dropped by 1.33% to the level of 5,146.03 with 13.3 times of earning per ratio.

After dismissing the myth of “August correction”, JCI tends to be bearish during this month. Since the beginning of September 2016, foreign investors have started taking profits. During September 2106, foreign investors have recorded IDR2.39 trillion of net profit.

Analyst at Recapital Securities Liga Maradona said that the recent JCI movements were driven by the plan of The Fed (American Central Bank) to raise interest rate. Currently, market is anticipating the decision made by The Fed's meeting, which is scheduled to be held on 20-21 September 2016.

Liga mentioned that the Fed's decision on increasing the interest rate will bring negative sentiments to the market. It is predicted that foreign investors will be more active in taking profits and drag the JCI to the level of below of 5,000.  He added that if The Feds decides to maintain the interest rate at the current level, JCI will return to  5,400, which is estimated as the safe level.

Head of Research Department at Yuanta Securities Kim Kwie Sjamsuddin has different opinion about the driving factor of JCI's correction with Liga. According to Kim,  domestic and foreign investors recently preferred to take profit on the grounds that JCI increased very high in the last month. He added that it is unlikely that The Fed will increase the interest rate.

European Central Bank (ECB) decision on stopping stimulus has also drive the market psychology. Kim estimated that JCI will be able to maintain the index at the minimum level of 5,000, on the grounds that the level of 5,000 will attract domestic investors to buy shares. Kim is even confident that JCI will hit 5,500 at the end of the year, even though The Fed finally decides to raise the interest rate.

Similar to Kim Kwie Sjamsuddin, Analyst at Danareksa Sekurittas Lucky Bayu Purnomo also said that it is unlikely for The Fed to increase the interest rate. Lucky predicted that the JKCI's correction will be lasting until The Fed holds meeting in the next week. After the meeting, JCI is predicted to be bullish.

“In general, market tends to be bullish ahead of the end of the year. Therefore it is unlikely for JCI to drop into a level of below of 5,000”, Lucky explained.

Both Kim and Liga suggested to be ready to buy shares once JCI is corrected. It is suggested that buyers choose to buy corrected blue chip shares,  as well as the shares with attractive earnings, such as shares from banking, construction, and consumer goods sectors. (Translator: Muhammad Farid)