Martin Panggabean (2019). Change Your Strategy

KONTAN.CO.ID - Martin PH Panggabean, Ph.D. Head of the Masters Program in Economics (Risk Management), Unika Atma Jaya

The world is entering a rare critical stage. So where should you put your money now? What is your strategy? To help you, I have some suggestions for finding information.

First, forget the sources of information and market analysis if it comes from government agencies. The government‘s opinion will be biased because naturally the government must appear optimistic so that you will not get a balanced pros and cons.

Second, forget the sources of information if they come from and work in the financial markets. The reason is that the resource person has to sell something so that their company gets a fee from your transaction. So it is not surprising that their main proposal is to rotate assets. Sell ??stock A, move to stock B. Fee in their pocket: Nice.

Third, forget the advice and market analysis of economic observers. Especially if this economic observer is holding a position in a government agency, which sometimes loses his critical analysis.

Lastly, don‘t focus too much on economic issues. You may think the economy is everything. But now the economy is just following other issues.

There are four main non-economic issues that are moving the market. The fourth is the trade and technology war of the United States (US) versus China (who do you think will budge first: Trump or Xi?). Brexit (who will budge: Boris Johnson or parliament or the European Union?). US-Saudi Arabia-Israel versus Iran: will Iran continue to be pressured and humiliated by Trump and the west? Argentina versus the IMF: will the IMF admit its mistakes?

The toughest is the trade war. The US and China make up more than 50 percent of the world‘s GDP. Without compromise, the world will enter into a recession. A hard Brexit will cause the European economy to go into recession as well. This means that the trade war and Brexit directly caused 70 percent of the world‘s economy to go into recession. Indonesia will definitely be affected.

Iran‘s confrontation with the US will only add a new dimension of pain, namely inflation. War will increase oil prices and production costs. The recession due to the trade war was followed by inflation. Indonesia will definitely be affected.

Finally, Argentina‘s pro-western President Macri looks set to fall in this month‘s election. It was succeeded by Kirchner‘s socialist government. Unfortunately, the IMF has already lent 57 billion US dollars to Macri and Argentina, while the potential winners seem ready to not pay the IMF. A default like this, as usual, will cause pain in emerging markets such as Indonesia.

That‘s why it‘s difficult for me to accept an optimistic assessment from the government that Indonesia‘s condition is fine. The attack on the Indonesian economy in 1998 became deadly because of the weak fundamentals of Indonesia‘s banking and corporate sectors. So the macro fundamental numbers that currently look fine do not always reflect resilience from the micro side.

Non-financial assets such as property are also not an alternative. At least in big cities, the price of land-house-shop-apartments is weak. OJK data shows stubbornly high bad loans.

Don‘t talk about Bitcoin, Libra, gold and commodities. With ongoing and ongoing uncertainty and volatility, these assets are not a prime alternative either.

Therefore, the recommendation of asset rotation at a critical time is completely unreasonable. Asset rotation recommendations are primarily based on correlations between assets. However, in times of crisis, the fundamental correlation between assets changes radically.

So how? I did a portfolio calculation simulation where the asset correlation was unstable, rapidly changing. It turns out that this quantification shows that your best strategy is with an equal-weight portfolio. Cash-stock-bond-forex-gold you can make as the main class. In stocks, there is also an equal-weight in 10 stocks. In the currency there are also 8-10 currencies. In bonds, there are also 8-10 government and corporate bonds.

Source: https://adv.kontan.co.id/news/ubah-strategi-anda