Impact of Middle East conflict on IHSG and solutions

The Integrated Stock Price Index (IHSG) is an index that measures the performance of all stocks on the Indonesian Stock Exchange (BEI). The rise and fall of the index directly reflects the performance of the overall Indonesian capital market. Therefore, it is not surprising that IHSG is one of the top macroeconomic indicators in this country.

The size of the IHSG value is influenced by many things. This includes both domestic and international economic and geopolitical conditions. The existence of conflict in some countries, such as Ukraine-Russia. and Israel-Iran It will inevitably affect the value of this index. How have conflicts in the Middle East influenced JCI and how will it respond to them? Read more below:

Impact of Middle East Conflict on JCI

More generally, conflicts in the Middle East between Iran, Palestine and Israel can cause the value of JCI to decline due to economic uncertainty. If there are additional details This may happen because:

1. Capital outflow

capital outflow or capital flight is The phenomenon of foreign investors leaving the market of a country. (In this case, Indonesia.) Uncertainty in the global economy will encourage foreign investors to withdraw assets from emerging markets, such as Indonesia, to developed markets, such as the United States.

In the stock market and capital market as a whole, foreign investors are selling a large number of stocks and bonds in Indonesia. As a result, capital market selling pressure in this country increased and JCI weakened.

2. An increase in the standard interest rate

It continues on the first cause, which is usually a “brake” on foreign investors fleeing Indonesia. Bank Indonesia (BI) will increase the standard interest rate (BI rate– This is evidenced by the increase in the BI Rate from January – April 2024 from 6% to 6.25%.

On the one hand, an increase in the benchmark interest rate will increase the incentives that holders of new bonds and other financial instruments such as deposits receive, causing investors to shift from investing in stocks to investing in bonds and deposits. or various instruments Refuge Others are considered safer.

This, in turn, can suppress the performance of financial issuers. This is because the issuer will have to pay more interest to savings customers. In fact Financial sector stocks (IDX Finance) include major issuers such as BBCA, BBRI and BMRI and are often at the core of IHSG value development.

3. World oil prices have increased.

Iran is a member country of OPEC (World Oil Producers), which also happens to control some of the fossil fuel distribution routes. As a result, when Iran is involved in a war The world’s crude oil supply will be threatened. and the price of world crude oil will increase

Crude oil is a strategic natural resource for Indonesia. for this country An increase in world crude oil prices may result in:

1. Reducing fuel subsidies– This means that the price of Pertalite and Pertamax will increase.
2. An increase in fuel prices may cause Prices and distribution costs of raw materials will increase (Inflation that drives up costs––
3. Inflation rate will suppressing the purchasing power of the people and if the purchasing power of the people decreases The potential income and profits of the debt issuer. Especially issuers in the consumer goods sector will decrease.
4. Reduced corporate income and people’s purchasing power will result in people being able to Reduce the proportion of investment income–

Bheema Yudhistira Athinekara, leader of the Center for Economic and Legal Studies (CELIOS) Interview with Metro TV in April 2024 stated that if the government is unwilling to reduce fuel subsidies Higher world oil prices may result in:

1. Expanding government spending and a budget deficit A budget deficit may indicate an increase in Indonesia’s foreign debt. And the rupiah’s exchange rate against the dollar will fall further.
2. Cost reduction for some national projects– To prevent APBN from expanding, Bhima recommended reducing government spending for certain projects that he felt would not have a significant impact. This may include national infrastructure projects. If spending on infrastructure projects decreases It can be said that infrastructure stocks, especially BUMN, will continue to contract in the coming months.

However, the impact of the Middle East conflict on the Indonesian stock market does not necessarily mean that the situation is dire. An increase in world oil prices could have a positive impact on issuers operating in the oil and gas sector, such as MEDCO or PGAS. Additionally, an increase in world oil prices could have a positive impact on issuers operating in the oil and gas sector. In fields related to alternative and renewable energy such as nickel mining and others.

What should investors do?

So what should investors do? In general, investors’ attitudes in the face of economic uncertainty are as follows.

1. Switch to investing in more stable assets.such as gold, bonds or deposits. However, this does not mean that they are risk-free. Gold, bonds and deposits are called safe assets. But the potential returns are also lower than stocks.
2. Buy on weakness– If you are a long-term investor Have a high risk tolerance and confidence in the fundamental conditions of the issuer’s shares you own. There’s no harm in using this strategy. Buy on weakness or buy stocks when the price is low Because if you choose the right stocks during a period when JCI is trending down like now It may be that in the next few years these stocks will bring you huge profits.

However, whatever attitude you choose, It is still important for investors to observe the fundamental conditions of a company’s shares. country’s economy and the performance of world stock exchanges This is because the conflict between Iran and Israel will escalate to its greatest extent if other Middle Eastern countries are involved.

Conclusion

It is possible that the value of JCI will decline as a result of conflicts in the Middle East. This is because transactions from foreign investors decreased. Changes in the reference interest rate and pressure on people’s purchasing power due to rising oil prices, a sector that “Potential“The negative impact is on the financial sector. Consumer products and infrastructure Meanwhile Sectors that have the potential to be positively affected include the mining and oil and gas sectors. However, the extent of the decline in the value of IHSG as a result of this global conflict remains to be studied. This is because the level of increase in stock prices in some sectors may be greater than the decrease in stock prices in other sectors and vice versa.