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Selasa, 01 Februari 2011

CLSA Indo : The return of volatility

One of the hottest topics for discussion these days is how volatile the stock market is. Friends and relatives are discussing stock market volatility the way they are discussing the latest and hottest sushi bars in town.

The reality is that volatility has always been part of this market. Looking at the 30-day volatility chart for the past 10 years (see below), JCI has always been highly volatile.

So, this is probably just a return to the volatile days that characterizes this market.

Interestingly, relative low volatility in 2H09-2010 appears to be the exception rather than the norm. Perhaps investors (and stockbrokers) are pampered by the relative stability of this 2009-10 period.  The JCI headed one direction – up!  Even the European debt “crisis” in May-June 2010 rocked this boat for only about a month before JCI resumed its relentless rise.


So what are the reasons for the return of volatility?
·         Maybe the changing tide explains it. Emerging markets have far outperformed the S&P 500 since US markets bottomed in March 2009. But the tide seems to have changed with the S&P 500 outperforming since inflation concerns began to emerge in Asia late last year. Indonesia was the big outperformer in 2009 and 2010. It is only normal that the reversing tide is felt a bit more here.
·         The generally held view that Indonesian Central Bank is behind the curve is exacerbating volatility.
·         ETFs (EIDO US and IDX US) and related short selling activities are adding fuel to the fire.
·         Or maybe it is simply the year of the rabbit - one should expect that the index will behave rabidly.


With fears of inflation globally (or at least in Asia) and rising velocity of money, and skillful money printing by many central bankers we are probably entering into a period of higher, or even inhumane volatility.

In any case, it is worth noting that an exposure to volatility can offer an opportunity to enhance performance. The ride will be rockier, but strong macro, supportive valuations (12.9x 11 PER), and strong commodity prices mean Indo market is still looking very compelling.

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