March 24, 2025
Earnings and Share Price Divergence = Another Equity Market Dip

Market Commentary
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On March 24, 2025, the Jakarta Composite Index (JCI) experienced a significant intraday decline of 4.6%, approaching the 5% threshold that would trigger another trading halt. 

This sharp downturn highlights heightened volatility and investor caution within Indonesia's stock market.
In contrast, other major Asian indices exhibited more stable performances on the same day.

The Nikkei 225 remained relatively stable, edged lower by -0.18%, KOSPI index with -0.48, while Hang Seng Index edged +0.91% higher along the Straits Times Index with +0.25%
 

Investors has been discussing on what caused JCI to underperform by far from the regional indices. In our view, this poor performance was contributed by a lot of things, which we believe unstable political turmoil plays a very important role.

This political issue, along with other negative sentiments, has successfully swept out sizeable foreign investment from the Indonesian equity market, as the instability adds more risk to an equity market that still lacks solid execution proof of Indonesia's great plan. Year-to-date, JCI has experienced a total of IDR 33.3tn foreign outflow.
 

As we look into FY24's result of several big companies, we became more certain that the problem is not on the earnings or financial performance outlook of Indonesian companies. We see a significant divergence between the EPS growth and share price performance as seen on the charts below.
 
Share Price (white) and EPS (blue) comparison of CMRY, BBNI, BBCA, and LQ45 Index (top left to bottom right)


Therefore, we believe it is better for investors to be very cautious yet remain invested and not trim their holdings, as the valuation of Indonesian companies remains attractive. We also recommend that investors wait for stronger catalysts before increasing their equity investment portion, such as the successful implementation of the DHE SDA program as planned.

In our view, it would be best to adopt a wait-and-see approach for further clarity before deciding on any aggressive investment strategy as earnings may not be the main trading reason for investors under current circumstance.

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