(Photo Courtesy of Valbury Asia Futures)

Staying Profitable as Recession Looms

OCTOBER 25, 2022

Jakarta. Still on the road to recovery from Covid-19, we will soon have to brace for another threat as recession looms just around the corner. Many economic institutions and experts, including the IMF, predict that there will be a global recession in 2023. In addition, the majority of Asia is currently dealing with the threat of a currency crisis as the region’s currencies tumble against the US Dollar, including Indonesia. Although Indonesia can still expect positive growth in 2023 – estimated at 5%- due to its large domestic market, a global recession will still leave a mark.

Asia’s economy remains largely resilient compared to the United States and Europe. Based on a survey from Bloomberg, Indonesia is ranked 14th out of 15 countries in Asia that are likely to face a recession.

What is a recession?
According to the National Bureau of Economic Research (NBER), a recession is a significant decline in economic activities that lasts for more than a few months. Economists say that there are indicators that signal a recession, including:

  • Declining Gross Domestic Product (GDP)
  • Rise of unemployment
  • Stagnation of manufacturing and retail sales
  • A decline in real income

Citing Business Insider, unexpected events can cause widespread economic shocks, such as the Covid-19 pandemic or the geopolitical crises in Russia and Ukraine. In addition, excessive debt levels, prolonged deflation or inflation, bursting of asset bubbles, and loss of consumer confidence can all lead to a recession.

How long will the recession last?
No one can predict how long a recession will last. This is due to the unpredictable nature of the business cycle as a whole. However, if we look at post-World War II history, on average a recession lasted for about 11 months.

During a recession, people's purchasing power will decrease due to price hikes. This will of course result in a negative domino effect. Companies will produce but sell less leading to decreasing profit. Various efforts would be made by the company to avoid bankruptcy, such as price wars, cutting operational costs, or closing less profitable business areas.

Most often, the first step companies take to minimize costs is to reduce the number of employees, or limit the number of job vacancies. Without human activities and mobility, economic growth will be stagnant.

3 Things You Need Before A Recession Occurs
When a recession occurs, the average trader and investor will experience panic. As a result, they would withdraw funds from the financial market which leads to falling asset prices. 

Truth is, not all financial assets are negatively affected by the recession. In order to reduce losses due to fluctuating prices, it is better for traders and investors to prepare the following three things:

1. Create an emergency fund
In the midst of economic uncertainty, having an emergency fund is necessary to maintain liquidity. Keep your emergency funds separate from your cash accounts and do not put them into nonliquid assets such as time deposits. 

If you have not yet achieved your emergency funds target, be consistent in setting aside money for the fund.

2. Reduce consumer debt
Interest rates generally will increase during a recession, therefore, do not take on long-term or consumptive debt. In case you are currently paying off a debt, it is advisable to set aside additional money to cover the installments for a few months.

3. Never Stop Investing
A fluctuating market is where traders find opportunities for profit. Diversify your assets; don't put all your eggs into one basket. Diversification is considered successful if the trader has assets with a negative correlation, such as gold and the US dollar.

Finding opportunities in the midst of recession
With the global economy being haunted by recession and rising inflation as well as the Russia-Ukraine war, online trading is in fact still the best option to stay profitable.

Allocate part of your portfolio to safe-haven trading assets such as precious metals and forex. Gold and silver are known to hold steady value in the midst of uncertain market conditions. Precious metals are considered very profitable because they are resistant to inflation, have high liquidity, and have universal value. Meanwhile, the US dollar is still the benchmark for measuring financial market valuations and reserve currencies in many countries.

When market conditions are uncertain, it is crucial for traders to have a diversified trading portfolio in order to minimize unexpected risks. At Valbury Asia Futures, we provide a wide range of safe haven assets for you to choose from. As the pioneer of futures market trading in Indonesia, Valbury Asia Futures is authorized by and operates under the supervision of CoFTRA (Bappebti) and the Ministry of Finance of the Republic of Indonesia. Find the best trading opportunities and experience the ease of trading using the Valbury app. Register and download the application now. Available for Android and iOS users.

Futures trading carries a high level of risk. If you want to invest in futures trading, you must first understand futures trading activities and the contents of the Trading Agreement and Rules.