We're wrapping up the first week of 2025, and market uncertainty persists. The global economic outlook remains clouded, with concerns about economic instability and the potential impact of new US policies under Tump’s leadership again. This has created a risk-off environment for investors.

Domestically, subdued inflation and weak demand pose challenges. The recent US Treasury yield spike is a headwind for the JCI. High US yields offer attractive returns with low risk, making them more appealing than Indonesian equities. This is further exacerbated by Indonesia's high bond yields (around 7.2%).

While strong conglomerate stocks have supported the JCI, foreign investor activity remains sluggish, particularly in blue-chip stocks. This subdued trading environment underscores the need for exploring alternative strategies and investment options to still record returns.

Portfolio Strategy

Despite all this, we remain prudent and adopt a cautious approach to managing the portfolios during such times.

Fixed-Income

The yield curve for Indonesian government bonds is currently inverted, meaning that shorter-term bonds offer higher yields (returns) than longer-term bonds. This indicates a signal of a potential economic slowdown, particularly in light of the Federal Reserve (Fed) delaying interest rate cuts. At the same time, Bank Indonesia faces a dilemma to either reduce its benchmark rates or maintain Indonesian Rupiah stability. This policy dilemma adds to the uncertainty in the fixed-income market.

We are adjusting our Bond Fund by reducing exposure to longer-duration bonds and increasing allocation to shorter durations, which provide the best risk-adjusted return.

Equities

Movements in JCI remain challenging in attracting investment amid rising global uncertainty. Bond yields, along with the U.S. Dollar, are likely to remain strong, much like interest rates.

Therefore, we continue to ride the wave of momentum stocks, which have demonstrated strong performance, while implementing risk management measures to protect against potential losses. We also continue to favor stocks with a strong exposure to the U.S. Dollar such as commodities alongside stocks with a solid track record of disbursing dividends to boost our fund's returns.

We recommend long-term investors remain invested by adhering to a disciplined Dollar Cost Averaging (DCA) policy for our Sustainable Equity Fund. The fund is well-suited for long-term growth, aligning with sustainable investment principles while building wealth over time.