Analysts are starting to take a bullish view on stocks and corporate bonds as recent benchmark interest rate cuts by the US Federal Reserve (Fed) and Bank Indonesia (BI) signal an end to the era of high interest rates.
However, he cautioned investors to look for stocks with solid fundamentals and high dividends, as concerns about a U.S. economic recession persist in global markets.
On September 18, the Federal Reserve cut the federal funds rate by 50 basis points (bps) to a range of 4.75% to 5%, the first such reduction in more than four years. The US central bank has also signaled it will cut rates by another 50 basis points by the end of the year, with another 100 basis points possible in 2025.
Just a few hours ago, BI pre-empted the Fed’s move by cutting the BI rate by 25 bps to 6%.
Lower interest rates generally stimulate economic activity by making loans cheaper for both businesses and individuals. At the same time, lower yields on safer assets such as U.S. government bonds could push investors in domestic and international markets toward riskier investments that offer higher returns.
Fanny Schuman, head of retail research at brokerage BNI Securitas, said retail investors could seize the opportunity to seek assets that offer returns above inflation. He highlighted that stocks in the financial, real estate and consumer goods sectors could benefit from a flurry of interest rate cuts and next year’s state budget, which is expected to support consumer spending.
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“The stock market could reach an all-time high due to aggressive buying from foreign investors who see positive prospects for the Indonesian economy,” he told The Jakarta Post on September 25. he said.
