Market Cycle

I looked at monthly JCI data back to 1988. Interestingly, Indonesia stock market cycle used to have 4 years period with bell-shaped form (that means the peak was reached somewhere in the second year).

Cycle #1: 1988–1991

Cycle #2: 1992–1994

Cycle #3: 1995–1998

After Asian Financial Crisis 1998, the market cycle is starting to change. Due to domestic reform era (post-1998), the stock market took a stagnant move during 1999–2002 (new government transition period). Starting 2003–2007 Indonesia stock market enjoy a long bull run (supported from global market and commodity boom in 2006 — mid-2008).

Cycle #4: 2003–2008

And again, after another crisis (Global Financial Crisis 2008), the market cycle is took another form. If in the previous bull-run the supporter was commodity-boom, post-2008 the supporter was global liquidity (unorthodox central bank policy a.k.a Quantitative Easing).

Cycle #5: 2008 — present

Since the bull-run was driven by global liquidity, the one who can stop the run was back to its source. In 2013 the run was challenged by The Fed tapering issue and caused market correction. But after The Fed gave clear guidance on gradual scale-back and affirming accomodative stance (keep lower interest rate), the bull was set run once again.

However QE was ended in Oct 2014, and the old challenge to the bull was coming back in early 2015. This time The Fed plan to gradually increase its interest rate and as expected, the market was retreat once again.

Apparently, the bull has not running out of luck. The fall of oil price, strengthening USD, lackluster global growth, Brexit event, and a pile of global uncertainty were keeping The Fed out on aggressive hike plan. The Fed did hike the interest rate by 25bps at end of 2015 and keep it remain until now. Before the Brexit event, The Fed was expected to lift another 25bps by mid-year and another 25bps in the fourth quarter. And now the probability of The Fed rate hike is close to 0–25bps by end of year.

If we look closer, currently market is starting to enter another new bull-cycle. How long the bull can run will depend on: 1) global liquidity (which global monetary policy is still pouring the money on the back of global recession worry post Brexit event), and 2) domestic issue (after tax amnesty law passed, foreign inflow start to coming back but this inflow need to see the “prove”: execution, realization, and overall domestic economy).

— -end of post #41