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After the Window Dressing, Comes a January Effect

After being closed on Friday, December 29, 2023, trading on the Indonesia Stock Exchange (IDX) officially reopened on Tuesday, January 2, 2024. The turn of the year is a momentum for capital market actors to open a new page of a more profitable portfolio.


Phenomena that are closely related to the turn of the stock exchange year include window dressing and the January effect. So, what exactly do these two terms mean?


Window dressing & January effect

Window Dressing: Attempts to Enhance Performance


Every quarter, public companies (issuers) release their financial statements. Financial statements are one of the fundamental analysis indicators that investors consider in choosing a company's shares.


Therefore, especially in the last quarter, aka the end of the year, issuers as much as possible will "polish" the company's financial statements with efforts in the form of postponing payment of obligations, recognition of income, etc. in order to retain and attract new investors. That is what is called window dressing.


Window dressing is not only done by issuers, but also by fund managers. In this case, a fund manager "beautifies" their client's portfolio if their performance in a year is not on target. The fund manager will sell stocks that have declined in value and try to cover the losses by buying new stocks that can generate returns in the short term.


January Effect as a Domino Effect


The window dressing effect will continue until at least the first two weeks of January where stock prices tend to rise, including those of companies with small market capitalizations. This is known as the January effect according to the timing of the phenomenon.


In addition to the window dressing impact, the January effect also has several other triggers such as investors' optimism and positive sentiment towards the capital market, the availability of investment funds from year-end bonuses, and so on.


Dealing with Window Dressing & January Effect


It is important to note that the window dressing phenomenon and the January effect must be addressed wisely by investors. This is because both window dressing and the January effect are anomalies that may or may not occur. Investors can take the following steps to handle them.


  1. Strengthen fundamental analysis beyond the company's financial statements, such as what the sector's growth prospects are.

  2. Investigate the liquidity of stocks with small market capitalization.

  3. Diversify your portfolio to reduce the risk of stock price volatility.

  4. Re-evaluate the portfolio to keep it in line with the initial investment objectives.


 

Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).



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