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Alert: Indonesian Bear On the Loose

bearThe Indonesian stock market has entered bear territory. Shares are said to be in a bear market when prices fall 20% from a recent peak. In the case of the Jakarta Stock Exchange Composite Index, the 3% drop on Tuesday brought the index down from a high 5,214 points on 20 May to 4,174 points – a decline of 20%.

The drop, it should be said, was not exactly unexpected. After all, when the US Federal Reserve hinted that it may start to ratchet back its money printing activities, it also meant an imminent end to the copious quantities of cheap US dollars flooding Asian economies.

The so-called tapering precipitated a sell-off in emerging markets as traders and investors repatriated money to the west. It is reckoned that investors have withdrawn some US$8 billion from exchange traded funds that invest in emerging markets.

The selling has driven the Straits Times Index (SGX: ^STI) 5% lower since mid-May. Meanwhile, palm-oil producer First Resources (SGX: EB5) is down 12%; Lippo Mall Indonesia Retail Trust (SGX: D5IU) is off 10% and Indonesian food processor Indofood Agri Resources (SGX: 5JS) has plunged 21%. Elsewhere, Jardine Cycle & Carriage (SGX: C07) by virtue of its association with Indonesia’s Astra International has lost 10%.

Indiscriminate selling of Exchange Traded Funds should be music to ears of long-term investors. It means that investors have dumped shares without first considering whether a counter is good or bad.  But not all shares can possibly be similarly affected by a slowdown in economic growth. So now could be an opportune moment to revisit those shares that you always wanted to own but were deemed too pricey at the time.

Admittedly markets are likely to be volatile. But volatility is merely a symptom that people have no idea of what they are doing. Nor do they have any inkling of the underlying value of the assets they are trading. This is where Foolish investors such as you and I have a distinct advantage. We know that markets are inefficient and inefficiency should be seen as an opportunity rather than a threat.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.