The Fed raises benchmark interest rates again Let's take a peek at the investment options amid rising interest rates

The United States (US) central bank, The Federal Reserve (The Fed) raised its benchmark interest rate by 25 basis points (bps) to 5.25-5.5% at the FOMC Meeting on July 26, 2023. With this increase, the Fed Funds Rate (FFR) has increased 11 times with a total increase of 525 bps since March 2022.

However, relatively mixed US macroeconomic data sparked uncertainty in global markets whether The Fed will again raise another 25 bps at the upcoming FOMC or will stay,

Putut Endro Andanawarih as Investment Director of BNI Asset Management said "at present investors in Indonesia have also anticipated an increase in The Fed's interest rate, where the JCI only corrected -0.38% in one day after the increase. The Fed will still look at economic indicators until the rest of 2023, if economic indicators, especially inflation, continue to subside according to the Fed's target, the Fed will hold interest rates at the current level of 5.25 – 5.5% and have the potential to lower the benchmark interest rate in the future. On the other hand, if important economic indicators such as inflation are expected to remain high and indicators for consumption and the US labor market are still quite aggressive, the Fed will raise interest rates again at its next meeting in September 2023.”

“Nevertheless, we see little chance for The Fed to raise interest rates again in September 2023 and will tend to hold interest rates at the current level considering that currently US inflation has fallen to 3% YoY, far compared to July 2022 which was recorded at 9.1% YoY, although it still fell short of the Fed's target of 2% YoY. With expectations that the Fed will hold interest rates in the coming months, we see that there are attractive investment opportunities in Fixed Income Mutual Funds and Equity Mutual Funds," said Putut.

Putut Endro Andanawarih added "The Indonesian bond market still looks attractive, one of which is shown from the movement in the yield of Indonesian 10-year bonds which are still relatively attractive compared to those in Asia even though they have decreased from 6.9% to 6.25% throughout 2023 and it is necessary to know Capital Inflow from Foreign Investors during 2023 is still + Rp 94 trillion, far compared to the Capital Outflow that has occurred since 2020 of - Rp 302 trillion, this makes Indonesia still has the potential to get additional Capital Inflows with more attractive yields.

In allocating investment assets, of course, investors need to take into account the risk profile. If an investor has a defensive – moderate risk profile, then Fixed Income Mutual Funds such as the BNI-AM Teakwood Mutual Fund or the Ardhani Sharia Fixed Income BNI-AM Mutual Fund are still attractive as investment allocations.

However, for investors who have a more aggressive risk profile, Stock Index Mutual Funds such as the BNI-AM Index IDX30 still have the potential to be an investment choice with a more attractive target return. The stock asset class is still considered very attractive, considering that the JCI tends to increase by +0.87% Year to Date (YTD) until early August 2023. From a net foreign inflow perspective, it is estimated to increase, with the potential for future interest rate reductions, stable macroeconomic conditions and also the recovery of the domestic economy in Indonesia. Investors are advised to subscribe gradually or use the Dollar Cost Averaging method, while waiting for the Fed's next decision in September 2023.