Investment Opportunities Amidst High Uncertainty

Even though it creates pressure, every crisis always provides an opportunity. We just need to be sharp to see it.

KOMPAS/PRIYOMBODO

The atmosphere at the Indonesia Stock Exchange on the opening day of trading on Tuesday (16/4/2024) showed a movement in the index. The Composite Stock Price Index directly dropped 192.84 points or 2.65 percent to the level of 7,094 following the long Eid al-Fitr holiday.

In Mandarin, the word for crisis is weiji'. The word consists of wei which means 'danger' andji which means 'opportunity'. This means that every time there is danger, crisis or uncertainty, there is also opportunity in it.

Currently, the world is facing high levels of uncertainty. Mari Elka Pangestu, a senior economist, stated in a webinar held by IDN Times last week that the escalating conflict between Israel and Iran would increase economic uncertainty. This phenomenon has led to a series of actions that further pressurize the economy.

This will cause the world oil prices to rise. Because Israel and Iran are countries in the Middle East peninsula which are the world's oil suppliers. When there is tension in that area, the oil supply will decrease, while world demand stays the same. According to economic law, prices will go up.

The rise in oil prices triggers global inflation, including in Indonesia. This will erode the purchasing power of the community which ultimately leads to an economic slowdown, not only in Indonesia but also worldwide.

In addition to this geopolitical tension, pressure on Indonesia's economy is increasing due to the depreciation of the rupiah. Citing the Jakarta Interbank Spot Dollar Rate (Jisdor), the rupiah exchange rate in Friday's trading (19/4/2024) closed at Rp 16,280, weakened by 371 basis points or 2.33 percent from the beginning of April which was at Rp 15,909.

Senior economist Bambang Brodjonegoro said in the same forum that before the war broke out, the US dollar exchange rate had actually strengthened compared to other world currencies, including Indonesia's. This is because the US Federal Reserve (The Fed) is predicted not to lower its benchmark interest rates in the near future. Because The Fed's interest rates are still high, investors consider storing their money in the US to provide greater benefits.

Finally, investors around the world withdrew their money from emerging markets, including Indonesia, to move it back to the US, resulting in capital outflow from Indonesia. As a result, the supply of US dollars in the country decreased, while demand remained the same. Finally, the rupiah exchange rate against the US dollar weakened.

Like the increase in world oil prices, the depreciation of the rupiah can also be transformed into inflation. Prices of domestically manufactured goods may also rise because many of the raw materials are still imported. Apart from that, the prices of imported goods also increased along with the depreciation of the rupiah (imported inflation).

Also read: Food and Energy Inflation Could Plagu Indonesia Again

KOMPAS/PRIYOMBODO

Shoppers select products while shopping at the Transmart retail supermarket in Jakarta, Wednesday (17/4/2024). The escalating tension in the Middle East is predicted to have an impact on the purchasing power of the community due to inflation of imported goods and global supply chain disruptions.

Keen to see opportunities

Both Bambang and Mari said that in conditions like this, a flight to safety phenomenon would emerge from world investors. Investors will move their assets towards instruments that are lower risk and profitable.

Global investors will transfer their assets to the US dollar and US Treasury Bonds or US Government Bonds. With the benchmark interest rate of The Fed not expected to decrease and accompanied by the appreciation trend of the US dollar, "holding" these instruments will be advantageous for investors.

In addition, a popular instrument in times of uncertainty in the world is precious metal or gold. Citing the gold price monitoring website, Logammulia.com, the price of gold reached IDR 1.34 million per gram on Sunday (21/4/2024).

This number increased by Rp 37,000 per gram or 2.82% compared to Sunday (14/4/2024) or when the war first broke out. In fact, if we look back to the beginning of this year, the price of gold has already increased by Rp 218,000 or 19.30%.

BENEDIKTUS KRISNA YOGATAMA

Gold Prices Throughout April 2024. Source: Logamulia.com

Financial Advisor and founder of Oneshildt Financial Planning, Risza Bambang, stated that in times of uncertainty, precious metals are instruments that provide security and yields. This is because precious metals are assets that truly have real value and have been traded worldwide for thousands of years.

"When conditions are uncertainty,investment in precious metals becomes a safe haven, especially since all nations have used gold as a means of payment for buying and selling goods in the past," he said when contacted on Monday (22 /4/2024).

Looking back at 2020, when the world was hit by a pandemic, the price of precious metals also skyrocketed rapidly. At the beginning of 2020, gold was sold at Rp 771,000 per gram. At the end of the year, the price of gold surged by Rp 198,000 or increased 25.68 percent to Rp 969,000 per gram.

At a time when the world is full of uncertainty, demand for precious metals increases because of their low risk nature. That's why gold is called a save haven

So that investors have US dollar savings in cash as emergency funds if an extremely undesirable situation occurs.

According to Risza, in uncertain conditions, retail investors need to be cautious in investing, especially when borrowing, specifically for consumptive debt and foreign currency.

"Avoid or significantly reduce productive debts for commodity, plantation, or mining goods whose prices are determined by geopolitical markets," he added.

The article contains forbidden words and cannot be translated.

RTI BUSINESS

JCI movement in the last week to Friday (19/4/2024).

Re-shake

Professor of Finance and Capital Markets at the University of Indonesia, Budi Frensidy, said that in the midst of a depreciated rupiah like today, in order to still gain profits, investors need to do a restructuring of their stock ownership composition.

He recommends divesting stocks that have debt burdens in US dollars. This is because with the weakening of the rupiah, the company's debt burden increases and can erode the company's profits. Ultimately, the stocks become less attractive and their prices can decline.

Next, investors can choose stocks that benefit from the strengthening of the US dollar, such as stocks of companies that are export-oriented with domestic raw materials. Companies like this can enjoy increased profits due to the current exchange rate of the rupiah.

"Investors can rearrange their stock composition and see which stocks have good opportunities in this condition," said Budi.

Reflecting on the various phenomena global uncertainty, it seems we need to be astute in seeing which direction the favorable wind is blowing. War will never provide benefits, but crises always give rise to opportunities.

Also read: Fend off a Double Blow in the Manufacturing Industry