Since early December, Indonesian stocks have experienced quite the plunge, with the JCI (Jakarta Composite Index) recording a drop of almost 4%, leaving the year-to-date performance at 2.74% (15/12/22). The JCI is currently at 6771 (15/12/22). In comparison, just three months earlier, in September, the JCI hit levels above 7300. What is causing this significant market correction?

One of the things that instigated this downhill path for the stock market is the negative performance that GOTO is currently experiencing. As a background, GOTO, or PT GoTo Gojek Tokopedia TBK, is the largest publicly listed technology company on the IDX (Indonesia Stock Exchange). GOTO was first listed on the IDX during its IPO on April 11th, 2022, and has just recently ended its lock-up period on November 30th, 2022. In the time leading up to the end of this lock-up period, GOTO stock experienced some price pressures; however, certain market researchers, including Deutsche Bank, still considered GOTO stock undervalued. Nevertheless, despite the positive analysis surrounding this stock, when it became tradeable at the end of the lock-up period, its value plunged significantly and is now trading at an all-time low. With a market capitalization of over 118 trillion, GOTO ranks as the fifth largest stock in the JCI, weighted at 4.23%. GOTO’s stock value plummeted over 70% from its IPO value, and considering its substantial weight on the index, this crash in share price has unfortunately pulled down the entire JCI’s performance.

Another thing to note is that two other large publicly traded companies with significant weightings in the JCI are also subject to GOTO’S negative performance. ASII or PT Astra International TBK and TLKM or PT Telkom Indonesia (Persero) TBK, which are blue chip, large-cap stocks, also have exposure towards GOTO in the form of investment. This exposure is reflected in the negative performance these two stocks have experienced. Again, because these two companies have significant weight in the JCI, their negative performances have pressurized the entire index.

Shifting away from technology, we now look at the financial sector, which has also suffered some correction this month. However, the nature of this correction differs from what we have discussed above. While the above scenario’s negative performance issue is largely sectoral, the financial sector’s correction is due more to the profit-taking sell-offs, especially from foreign investors. The share price correction in big banking stocks is not due to shaky fundamentals or negative sentiment. On the contrary, because these stocks have performed satisfactorily, investors are cashing in and realizing their positive returns.

As can be seen below, the financial sector recorded a net sale of 7 trillion rupiahs during the month of December. However, when we look at YTD (Year to Date) records, we will find that the financial sector boasts a solid 24 trillion net buy, which proves investors very much believe in this sector.

So what does this mean for investors, and how does it translate to a portfolio strategy? It is important to note that market correction is sometimes good. While the initial urge may be to react by panic selling, it is important first to consider why a market correction is occurring. Only after knowing the cause of the issue can an investor build an intelligent strategy.

As we have discussed, this stock performance drop is due to negative exposure in the technology sector and profit-taking in the financial sector. These two issues are the primary cause of concern as opposed to macroeconomic conditions or recession fears. That said, investors may take advantage of the lower prices in the financial sector to buy into what would otherwise be selling at a premium. We know that big banks are solid stocks with good fundamentals that make good long-term investments. Investors seeking to implement this strategy may consider some of the large-cap-focused mutual funds available on the Moduit platform, such as BNP Paribas Sri Kehati, Allianz Sri Kehati Index Fund, and Batavia Dana Saham.