Stock Elegy in May

Is the "sell in May and go away" phenomenon relevant to the stock market in Indonesia?

KOMPAS/PRIYOMBODO (PRI)

Index movements were monitored from monitors at the Indonesian Stock Exchange Hall in Jakarta, Friday (5/4/2024).

The adage sell on May and go away is certainly familiar to investors in the stock market. The month of May is said to be the moment when stock traders or traders flock to sell shares and leave the composite index in deep correction. Then, investors put their money back in October.

This phenomenon originates from England, where it is known by a longer slogan, namely sell in May and go away, and come back on St Leger'< i>s Days.

Head of Online and Equity Sales NH Korindo Sekuritas, Hendra Stevin, explained to Kompas, the meaning of the slogan was originally aimed at investors in England, the nobility and bankers to sell their shares in May, then relax and enjoy the season. heats up and leaves the market for a while and returns again on St Leger's Day, a horse racing event in September.

"So, based on the definition above, investors assume that May is the time to sell stocks in droves and to become active again in October," he said on Monday (May 6, 2024).

This pattern certainly suits those who live in four-season countries in Europe, as well as America.

Quoting a review by O'Neil Global Advisors Senior Portfolio Manager, Randy Watts, in Forbes on May 12 2023, the United States market also believed in this phenomenon from the market crash in May until the end of summer or early fall in 1987 .

Based on actual data, which he collected for more than 50 years until 2023, the stock performance is better in the November-April period compared to the May-October period.

This can be seen in the Standard & Poor's (S&P) 500 Index in the US, which on average experiences a increase of 6.5 percent during the November-April period compared to only a 1.6 percent increase during the rest of the year, with a difference of 4.9 percentage points. The significant difference is also reflected in the NASDAQ stock index with 5.9 percentage points and Dow Jones Initial Average (DJIA) with 6.9 percentage points.

Does this saying occur in Indonesia and is it still accurate today?

Historical data on the Composite Stock Price Index (IHSG) on the Indonesian stock exchange over the last 20 years, which Hendra showed, found that the IHSG declined the most in the May-October period.

The negative return rate or correction of the IHSG (Indonesia Stock Exchange) in May occurred 10 times in the last 20 years. Then, in June, there were 8 corrections, followed by 2 corrections in July. Continuing to August and September, there were 9 corrections each, and in October, only 6 years experienced corrections.

Historical data of the Composite Stock Price Index on the Indonesia Stock Exchange over the last 20 years shows the biggest decrease in IHSG during the period of May-October.

In November, there were the most corrections, a total of 11 times. Then it improved in December with only one year experiencing correction. January and February each had 8 corrections, March had 5 corrections, followed by 7 corrections in April.

"So, if it is said to be true, there is truth to it, but not 100%. It is proven that there are more corrections in November, and there are many other factors that support this," said Hendra.

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May is not always bad

Although May and the following five months have been periods that have experienced negative returns quite frequently in the last 20 years, May does not always mark the beginning of a decline trend for the IHSG.

In 2024, up until Monday (6/5/2024), the stock market index (IHSG) has still experienced negative growth, with a decrease of up to 1.62 percent. Investors are withdrawing their investment from the stock market, especially in April last year. The Ministry of Finance noted that the total investment withdrawn by investors to foreign countries amounted to Rp 29.73 trillion in one month, consisting of shares worth Rp 13.08 trillion and government bonds (SBN) worth Rp 16.65 trillion.

Among the significant factors is the condition of the global economy. Over the last six months, various events that have rocked the economy have occurred, from the escalation of geopolitical conflicts in the Middle East, the strengthening of the US dollar, to the withdrawal of plans to lower interest rates in the US from March to September 2024, based on market estimates.

The Ministry of Finance reported a capital outflow of IDR 29.73 trillion by investors to foreign countries in a month, consisting of stocks worth IDR 13.08 trillion and government bonds worth IDR 16.65 trillion.

Positive growth

Hendra predicts that this month of May there will not be too many problems with corrections because the world's global turmoil is no longer significant. In the first week of May, the JCI began to rebound to levels above 7,100.

"Due to the tendency of wars between countries (yesterday), the increase in prices of several commodities such as oil, gold, and coal, will trigger a rise in stock prices categorized under those sectors," he said.

Infovesta Kapital Advisori analyst, Arjun Ajwani, sees that sell in May and go away does not happen based on historical data. Drawing on data from 2013-2023, only 60 percent of May experienced negative performance. This happened in May 2016, 2018, 2019, 2021, 2022 and 2023, with a decline of between minus 0.18 percent to minus 4.08 percent.

"It was also more influenced by market and economic conditions at that time, not because of this phenomenon," he said when contacted separately.

He also predicts that in May this year, the JCI will rebound or grow positively ahead of the dividend payment season starting from the 3rd week of May until the end of the quarter or the end of June 2024.

KOMPAS/PRIYOMBODO (PRI)

The President Director of OCBC Bank, Parwati Surjaudaja, presented the results of the Public Presentation of the Annual General Meeting of Shareholders (RUPST) for PT Bank OCBC NISP Tbk in Jakarta on Monday (18/3/2024).

Also read: The Economy Grows 5.11 Percent in the First Quarter of 2024, the Highest in Five Years

From the information disclosure data of the issuers in the Indonesia Stock Exchange, the dividend distribution schedule for the first semester of 2024 is busier in April and May, with 24 issuers and 20 issuers, respectively. The general meetings of shareholders are also bustling in April with 102 issuers and May with 179 issuers.

"So, the Indonesia Stock Exchange (IHSG) in May will be positive along with the release of financial reports of the majority of large capitalized issuers expected to generate sufficient profits, and grow positively due to the strong and conducive domestic business conditions," said Arjun.

The increase in the Jakarta Composite Index (IHSG) is predicted to continue until the end of June 2024. It is projected that the IHSG could reach the range of 7,260-7,300. Therefore, the possibility of a decline in the IHSG in May may not occur.