With more investment instruments available, reaching the peak of financial success is closer than ever to reality. Aulia Rachmat reports.
Wealthy Indonesians have so far relied on three instruments to manage their wealth; time deposits, mutual funds and life insurance, says Jens Reisch, president director of Allianz Life Indonesia.
Time deposits alone are valued at 336 trillion rupiah (around US$ 37 billion). “Majority of Indonesian people prefer to play it safe since putting the money in a time deposit offers the lowest risk among the three instruments,” Reisch asserts. But with interest rates on time deposit dropping to six and seven per cent, more and more people, particularly the socialites, are looking elsewhere, he adds.
As a person achieves financial independence, his or her risk appetite increases. He or she diversifies his or her investment portfolio with instruments that offer better yield but higher risks. Reisch observes that due to current global market jitters, mutual funds have shown a significant growth and reached 67 trillion rupiah (around US$ 7.4 billion). Mutual fund portfolios are usually invested in short-term money instruments like treasury bills, time deposits and promissory notes. More people are also eyeing high-return, long-term investments like equity funds in a life insurance product, Reisch explains.
“And despite having more attractiveness in gaining greater earnings on a mutual fund compared to a time deposit, many people now are eying at higher return of investment. Long-term investment like equity fund in a life insurance product is one of the examples,” Reisch explains.
He notes that the 82 trillion rupiah (around US$ 9.03 billion) invested in life insurance nationwide proves that Indonesians are now thinking ahead and understanding what a life insurance company can offer in terms of investments.
Allianz Indonesia, through its 7,000 agents nationwide, collaborates with such banks as Danamon, Permata and Standard Chartered to offer unit-linked products – an investment-linked policy that allows clients to choose a protection package with related options such as equity funds. “It’s an innovation of a life insurance product that includes financial protection that can help you grow your savings. Additionally, such a financial product will enable you to enter markets that may not be accessible for individual investors,” Reisch explains.
“Unlike mutual funds, one needs to purchase at least five years of life insurance coverage in order to invest in equity funds, since this is a long-term investment with insurance protection. Already a big concept in the United States, equity funds offer more opportunity and higher returns on investments despite their higher risk.” The fund is invested in the Jakarta Stock Exchange.
Another instrument is investing any of the three main instruments of futures trading; foreign exchange (forex), commodity futures trading and stock index.
Forex are traded using pairs of currencies such as US dollar/Yen, US dollar/Canadian dollar, Pound sterling/US dollar, Euro/US dollar and US dollar/Swiss Franc. Forex trading, however, is also considered a short-term investment as investors risk their capital in the frame of minutes.
Commodity futures trading, meanwhile, is trading commodities for a profit. These include soft commodities (agricultural and plantation commodities like sugar, coffee, corn, soybean, etc.) and hard commodities (mining commodities like gold and petroleum products).
Kristanto Nugroho, president director at PT. Asia Kapitalindo Komoditi Berjangka, and founder and member of Jakarta Futures Exchange and Indonesian Derivatives Clearing House, says that a key to success in this area is the ability to predict future prices of the commodities being traded in the market.
A few years ago, we received information that oil price was in the breaking low point, he explains. “Today, the oil price has gone up higher than expected and those who had correctly projected the future price would have made a good profit.”
Another futures trading instrument is the stock index, where investors speculate on the general market performance being traded using composite stock indices. Among the most popular stock indices swapped in the global market are the American Dow Jones Industrial Average, the British FTSE 100, the Japanese Nikkei 225, the Hang Seng 40 of Hong Kong and Kospi 200 of South Korea.
“The last three are the best known among Indonesian futures trading investors. Through the on-line facility, investors can track a group of stocks being traded in a particular country instead of only monitoring individual stocks,” Nugroho adds.
“Indeed futures trading holds the potential to earn a much faster and higher return on investment compared with the interest rate of a time deposit in most banks, if done correctly,” says Nugroho.
“Should you decided to invest in some futures trading, the first step is to make financial goals and do some research. Although some investors feel confident to engage in trading, beginners should think of hiring a professional to avoid ‘novice mistakes’. Notwithstanding the high risks involved, careful research and a well-organised plan plus an ability to analyse trends are important for trading success,” Nugroho asserts.
He further says that there are two important indicators that both traders and investors must be familiar with when engaging in futures trading transactions – fundamental and technical analyses.
Fundamental analysis is a way of analysing the characteristics of a company or a group of companies. Even though earnings are difficult to calculate precisely, an investor can at least evaluate the stock prices using the fundamental analysis method. When a company is growing, its stock usually increases.
Technical analysis, however, is a method to analyse the statistics and fluctuation of prices that are generated by market activities. “And it’s recommended that investors engage the services of investment companies whose brokers are licensed by the Commodity Exchange Supervisory Board to carry out trading activities,” Nugroho advises.
Published in The Peak Magazine, December 2007.