Investasi Pasar Modal

Disusun oleh:

Akhdan Y. Indrayadi 1706058823

Nadya Agustina 1706972915
Nancy Hera Valeria 1706972934

Fakultas Ekonomi dan Bisnis

Universitas Indonesia
2020
Chapter 12: Macroeconomic and Industry Analysis
12.1 The Global Economy
There can be considerable variation in economic performance across countries even within regions.

Stock market returns do not always align with macroeconomic expectations -> this reflects the impact
of near market efficiency, where stock returns are driven by performance relative to previous
expectations.

Political uncertainty can pose considerable economic risks.

Factor that affects the international competitiveness of a country’s industries is the exchange rate
between that country’s currency and other currencies. ​The exchange rate – the rate at which
domestic currency can be converted into foreign currency.

The ratio of purchasing power is called “real” or inflation-adjusted exchange rate.

12.2 The domestic macroeconomy

1​st step in forecasting the performance of the broad market is to assess the status of the economy
as a whole.

Key economic statistics used to describe the state of the macroeconomy:

Gross Domestic Product

The market value of goods and services produced over a period of time.

Another popular measure of economy’s output is ​industrial production -> this statistic provides a
measure of economic activity more narrowly focused on the manufacturing side of the economy.

Employment

Unemployment rate – ​the ratio of the number of people classified as unemployed to the ​total
labor force.

Capacity utilization rate ​– the ratio of actual output from factories to potential output.

Inflation
The rate at which the general level of prices for goods and services is rising.

Interest rates

High interest rates reduce the present value of future cash flows, thereby reducing the
attractiveness of investment opportunities.

Interest rates affect interest payments.

Budget deficit

The amount by which government spending exceeds government revenues. ​Economists

generally believe excessive government borrowing will “crowd out” private borrowing by forcing
up interest rates and choking off business investment.
Sentiment

For example, if consumers have confidence in their future income levels, they will be more willing to
spend on big-ticket items.

12.3 Interest rates

Unanticipated increases in rates generally are associated with stock market declines.

Factors determining the level of interest rates:

1. The supply of funds from savers, primarily households.
2. The demand for funds from businesses to finance physical investments in plant,
equipment, and inventories.
3. The government’s net supply and/or demand for funds as modified by actions of the Federal
Reserve Bank.
4. The expected rate of inflation.

The lower the real interest rate, the more businesses will want to invest in physical capital.

To obtain the ​nominal interest rate, one needs to add the expected inflation rate to the
equilibrium real rate.

The inflation premium is necessary for investors to maintain a given real rate of return on their
investments.

In the long run, the ultimate impact of an increase in the money supply is an increase in prices with
no permanent impact on real economic activity. In the shorter run, changes in the money supply
may well have an effect on the real interest rate.

12.4 Demand and Supply shocks

A demand shock ​– is an event that affects the demand for goods and services in the
economy.
A supply shock – ​an event that influences production capacity and costs in the economy.

You want to identify the industries that will be most helped or hurt in a particular
macroeconomic scenario.

12.5 Federal Government policy

Fiscal policy
The use of government spending and taxing for the specific purpose of stabilizing the
economy.
Takes long time to execute, though the impact is relatively immediate.

Monetary policy

Actions taken by the central bank (in the U.S., the Federal Reserve System) to influence the
money supply or interest rates.

Increases in money supply lower short-term interest rates, encouraging investment and
consumption demand.

Over longer periods, a higher money supply leads only to a higher price level and does not have a
permanent effect on economic activity.

Monetary policy is easily formulated and implemented but has a less immediate impact.
Implementation:
1. Fed buying/selling securities (Treasury bonds);
2. Discount rate – the interest rate Fed charges banks on short-term loans;

3. Reserve requirement – the fraction of deposits that banks must hold as cash on hand or as
deposits with the Fed.

The federal funds rate is by far the better guide to Federal Reserve policy.

Supply-Side policies

Lowering tax rates will elicit more investment and improve incentives to work, thereby
enhancing economic growth.

12.6 Business cycles

-> Recurring cycles of recession and recovery.

Peak – ​the transition from the end of an expansion to the start of a contraction.
A trough – ​the transition point between recession and recovery.

Cyclical industries – ​industries with above-average sensitivity to the state of the economy.

Defensive industries – ​industries with below-average sensitivity to the state of the economy.

When the perceptions about the health of the economy become more optimistic, the prices of most
stocks will increase as forecasts of profitability rise -> stocks of cyclical firms will rise the most.

Economic Indicators

The Conference board publishes a set of cyclical indicators to help forecast, measure, and interpret
short-term fluctuations in economic activity.

Leading economic indicators – ​economic series that tend to rise or fall in advance of the rest ​of the
economy.
12.7 Industry Analysis

Defining an Industry

NAICS codes – ​classification of firms into industry groups using numerical codes to identify
industries.

Sensitivity to the Business Cycle

3 factors determine the sensitivity of a firm’s earnings to the business cycle:

1. The sensitivity of sales;
a. Necessities show little sensitivity;

b. Industries with low sensitivity – income is not a crucial determinant of demand

(tobacco)
2. Operating leverage – the division between fixed and variable costs;

a. Profits of firms with greater amounts of variable as opposed to fixed costs will be less
sensitive to business conditions -> in economic downturns these firms can reduce costs
as output falls in response to falling sales.

3. Financial leverage – the use of borrowing.

The key issue is whether the expected return on the investment is fair compensation for the risks
borne.

Sector Rotation

An investment strategy that entails shifting the portfolio into industry sectors that are expected to
outperform others based on macroeconomic forecasts.
Business Cycle

Peak (high inflation, interest rates, prices pressures on basic commodities) -> invest in firms engaged
in natural resource extraction.

Industry life cycles

The industry life cycle

Stages through which firms typically pass as they mature.

Start-up stage:
Industry level: sales and earnings will grow at an extremely rapid rate when the new product has not
yet saturated its market.
Consolidation stage:
Industry leaders begin to emerge.

The survivors from the start-up stage, and market share is easier to predict. The industry still grows faster
than the rest of the economy as the product

penetrates the marketplace and becomes more commonly used.

Maturity stage:

The product has reached its potential. Relative decline.

Industry structure and performance

The maturation of an industry involves regular changes in the firm’s competitive environment.

Michael Porter has highlighted 5 determinants of competition:

1. Threat of entry
o Barriers to entry can be a key determinant of industry profitability.
2. Rivalry between existing competitors
3. Pressure from substitute products
o Competition from firms in related industries.
4. Bargaining powers of buyers
5. Bargaining power of suppliers
o Monopoly of supplier in the industry.