Will the IHSG Continue to Fall?

On Wednesday, December 20, the Jakarta Composite Index (IHSG) on the Indonesia Stock Exchange closed down 58.184 points (0.94 percent) to 6,109.48, from its all-time high of 6,167.66 the previous day. This marks the third decline in December 2017.

From a fundamental perspective, the Jakarta Stock Exchange's price-to-earnings ratio (PER) has reached 22.29 times. This is higher than the PER of major Asian stock exchanges such as Japan (19.64 times), Hong Kong (13.64 times), and Singapore (11.08 times). This means that share prices on the Jakarta Stock Exchange are more expensive than those on major Asian exchanges.

The relatively high share prices, corrections in several Asian exchanges, and the IHSG's Relative Strength Index (RSI 14-day) nearing the 70 level (overbought) prompted investors to take profits. This caused the IHSG to briefly fall below the 6,100 level. Based on the 20-day Bollinger Band indicator, the index still has the potential to reverse course and rise to 6,158 if it can stay above the 6,058 level. If it fails to do so, the IHSG could continue its decline to 5,958.

(Read Databoks: 2017, Financial Sector Leads Stock Gains on the Jakarta Stock Exchange)