After enduring an extended bear market, is the market finally turning bullish? The S&P has surged to record high last Friday since Jan 2022.
How did we get there?
Despite unfavorable economic conditions with the latest US CPI data surpassing projections, making the likelihood of a Fed rate cut in March appears increasingly unlikely.
The primary contributor to the S&P's return to its record is hardly a shock: NVDA, renowned for producing AI-powering chips. Without Nvidia, the S&P wouldn't have reclaimed its peak. However, notable contributors come from the old economy, namely Exxon Mobil Corp., Warren Buffett’s Berkshire Hathaway-ofcourse, as well as Microsoft and Apple.
Looking pretty solid!
Is this a lasting rally of a new bull market, or just a blip of speculation? With 35.3% surge since October 2022, the S&P 500 hit a new high, challenging the notion of a bear market.
Let’s take a little bit of history lesson: The first decade of this century began with the S&P approaching its dot-com-era peak, leading to a lost decade of correction for speculative over valuation. Despite two market crises, the market doubles between those events, culminating in a peak in October 2007, just before it tumbles down with the subprime mortgage lender bankruptcies.
Was this considered a bull market?
In 2007, concerns about the deteriorating economy and credit market had many fearing overvalued stocks. As it turned out, those worries were justified! Low interest rates and easy credit delayed the fallout, but eventually- the market hit a new low.
Sure, there were those who made double gains in that period, but also leaving many that didn’t get it right when they try to time the market during the what seemingly an upward trend.
Drawing insights from the US market, how can we better interpret the performance of our JCI?
The JCI is holding steady within the vicinity of its all-time high, lingering around the 7200 range. The beginning of the year rally, led by big banks establishing record highs, implying a potential smooth landing and could signify the end of the protracted bear market.
Source: TradingEconomics
However, with the Fed's cut rate appearing distant followed by the PBOC not implementing the expected cut to stimulate China's economy, the likelihood of a BI rate cut seems to be further pushed down on the agenda.
Thus, retail bonds is expected to remain a lucrative investment option for now. ORI125, for instance, offers a yield of ~6.5%. The six year tenure yield could potentially reach 6.7%, with upsize option that can extend up to 6.9% yield. The higher rate in turn, hangs the the property sector dry, which relies on lower rates to stimulate the market.
Should the BI rate persist at elevated levels and bond yields remain high, the market's peak might mirror a transient bull market. Conversely, if the market accurately anticipates and yields return to normal, the ongoing market rally could evolve into a true bull market.
According to the World Bank, this year is anticipated to mark the slowest half-decade of GDP growth in 30 years. However, there is a noteworthy exception: India.
India just surpassed Hong Kong and secure the position of the world's fourth-largest stock market. After rapid economic growth of 7.2% in the FY22, India's GDP growth rate in the FY23-24F is forecasted to be 6.3%.
The optimism for India's long term economic growth is driven by several key growth factors. First, the substantial and rapidly expanding middle-class serves as a significant positive force, propelling domestic consumer spending.
Additionally, the ongoing digital transformation is set to catalyze e-commerce growth, reshaping the retail consumer market in the coming decade. This shift attracted substantial investments from global tech giants such as Google and Facebook, drawn by India's expansive consumer market, coupled with a surge in FDI from manufacturing firms.
Over the last five years, India experienced a substantial surge in FDI, hitting a record USD 84.4 bn in FY22, up from USD 82 bn in FY21. Despite a slight dip to USD 70.9 bn in FY23, the inflow seems to be consistently on the high side.
As a comparision, Indonesia secured ~USD35 bn in FDI in 9M23, a noteworthy yet modest figure compared to its record high of USD44.8 bn in FY22. FDI in Indonesia in 2023 continues to be largely driven by the metal and mining sectors, reaching over ~USD17 bn, a 16.2% yoy.
Source: BKPM
Replicating such success is attainable in Indonesia, as entry ticket are still sizable and numerous sectors still offer ample room for growth. Additionally, Indonesia shares a comparable demographic profile with India, boasting a substantial population and a growing middle market.
The swift rise of digitalization and increasing internet penetration in Indonesia adds further support to boost the consumer spending. With appropriate guidance and political stability, building global confidence for capital inflow is very achievable.
Indonesia, is like a giant vessel with abundant resources, it requires a capable captain to navigate through economic and political challenges. With active government efforts to attract foreign investment, such as seeking investors for the IKN project, our nation is well-positioned to grow at a similar rate.
Particularly as global attention shifts away from China, this is an opportunity for our JCI to shine-globally!
Thus our top picks focusing on the robust and stable banking sector represented by BBNI and BRIS-positioned as the new super growth shariah bank. In the consumer sector, comes our favorite blue-chip, ICBP. Lastly, we believe MTDL and TOWR are poised to reap substantial benefits and spearhead Indonesia's ongoing digital transformation.
So where do you stand on the bull or bear market? Neither arguments can be discounted, always happy to discuss our calls!