The Money market
The General Election in Italy this week would influence the course of
exchange rate value of world’s currencies and global stock markets. This was
already visible as last Friday [ 1/3 ] slipped to weaken by 8 points against
USD following worries among players of the money markets over the political
condition in Italy.
Rupiah exchange rate value at the interbank transaction in Jakarta
weakened by 8 points to become Rp9,668 against the previous position of Rp9,660
per USD. Exchange rate value of some currencies of the developing countries
including Rupiah slumped following anxiety over the political condition in
Italy. Investors were still worried about uncertainty in Italy, the third
biggest economy in Euro, which might worsen to make crisis even worse.
Currencies of the developing nations were also down pressed by the data
which showed that inflation in Europe slumped to the level of 2% in last
January against 2.2% in December 2012 which enabled the Europe Central Bank [
ECB ] to pour more stimulus. From the Non-Delivery Forward [ NDF ] market
pressures on Rupiah notably eased followed by volatility of daily transactions
which also lessened.
Meanwhile at home word was out that foreign capital inflow entering
Indonesia was posting increase. However, entry of foreign capital was not
strong enough to help Rupiah to strengthen amidst low performance of
Indonesia’s Balance of payment as reported by BI last week.
Previously USD was posted to strengthen against Euro after Governor of
the Fed Ben Bernanke underscore the stimulus program would continue, while
Yen’s value was predicted to move flat toward election of the new Governor of
the Japan Central Bank.
In Washington DC Chairman of the Federal Reserve Bank Ben Bernanke cast
aside speculations of ended quantitative easing when he said to a panel of the
Senate that stimulus program of the Fed had impact and still needed. Bernanke
stated that inflation remained mild while the Fed defended their rationale in
every potential risky market behavior due to low interest. The Board of Policy
of the Fed stayed confident that he now had the instrument needed to tighten
monetary policy when the time comes to do it.
Euro remained to be under pressure after the election in Italy ended
unconvincingly and feared to trigger political problem and dead end in policy
making process in this country. Political uncertainty mounted in Italy after
election outcome in Euro burdened Euro and risky assets.
One noteworthy thing was that Rupiah stood a chance to strengthen in
Semester Two 2013. Foreign capital that flowed in to the stock market of
developing countries added strength to Asian currency including Indonesian
Rupiah. Asian currencies were Volatile in Quarter I of 2013. The reason was
fiscal risk in the USA, but the risk would be smaller in Second Semester of
2013.
Today Rupiah was under pressure due to fundamental economy in Semester
One 2013; at that time Indonesia’s current account turned bad which suppressed
Rupiah, while prices of imported goods increased. This years rising inflation
was not only on account of Rupiah weakening but also due to certain Policies.
The Central Board of Statistic [BPS] posted inflation of February 2013
at 0.75%, down against January inflation at 1.03%. Inflation by calendar year
was at 1.79% and annual inflation y o y was 5.31%. meanwhile by core inflation the level was
4.29% and 0.30% in February. This was indeed a disheartening news about
Rupiah’s fate this week.
The good news was that foreign invertors’ interest to process
Government’s bonds of Rupiah denomination continued over February in tandem
with high investment yields level which broke record this month. From the Inter
Dealer Market Association Index [ IDMA ] it was visible that rally of Government’s
bonds in Rupiah denomination continued over February last.
Return of Government’s bonds by January 2012 was posted at 113,4 points,
while in December 2012 it was 117.7 and last February 117.97 point. Meanwhile
portion of foreign ownership of Government’s bond in January 2012 was 32% in
December 2012 32.9% and last February 33.5%. This increase showed flow of portfolio
investment to Government bond’s market continued to resists at positive level
since September 2012 last or six consecutive moths.
Increase of investment return and high invertors’ interest were driven
by Rupiah exchange rate value which was continuously under pressure at the
market due to Indonesia’s trade balance which was still in deficit and the fact
that global economy had not fully recovered. One of the answers which had
increased foreign invertors’ interest in Government’s bonds indicated that the
world’s liquidity level was high, moreover with policy of central banks of the
world which tend to be accommodative.
Total value of financial balance sheet of leasing banks like the Fed,
Europe central Bank, and the Central Bank of England and Central Bank of Japan
continued to rise lately so they dared to pursue high yields.
Indonesia’s Government bonds was among the assets constantly regarded as
attractive moreover to note that Indonesia’s inflation rate today was low so
real interest rate was still in positive territory, unlike the condition in
most developed countries today. In time to come, pursue for Government’s bonds
was predicted to remain high in line with high world’s liquidity and low
inflation in Indonesia.
Not less noteworthy was Malaysia’s regulators who strictly managed
benchmark rate for Ringgit to USD. The Government of Malaysia wished to enhance
transparence and protect the domestic market from manipulation practices. As
from last week, the contributing bank must renew data of gradual transactions
from 10.55 to 11.00AM local time. According to the Association of Malaysia
Financial Market this benchmark rate could be used in inter-bank transactions
or transaction with the Central Bank for transactions of at least USD 5
million.
Besides, the difference in currency pairs would be reduced to become 10
pip against the previous 20 pip. For information, pip was the smallest unit of
currency price which was equal to 1/00 cents if converted in USD denomination.
The point was that Malaysia tightened rule of the game in interest setting
since the Monetary Authority of Singapore [ MAS ] made investigations on the
Singapore Banking Associations where there was manipulation in setting the
non-deliverable forwards [NDF].
Just to remind, NDF was a forum was a transaction instrument for players
who could not do transaction onshore. However, very often this practices was an
instrument of speculation because it did not use physical banknotes. Last month
there was strong suspicion that Singapore banks were making a plot in setting
benchmark to reap profit at the NDF market. Instantly Bank Negara Malaysia, the
Central Bank ordered all the banks in Malaysia to refer to the Ringgit
benchmark rate in making monetary contracts.
The Malaysian Financial Market Association was expecting to increase the
number of contributor banks in setting exchange rate value and was now
negotiating with certain banks. In the formal draft the Association claimed
that the Central Bank would continue to control input of exchange rate value
from contributors and would instantly make investigations in case of any
deviation from the stipulated parameter.
It was not only Malaysia who tock action against manipulation. MAS,
Singapore’s Central Bank had asked banks who were players of NDF to evaluate
the process of contract in this forum. Some banks like UBS and Royal Bank of
Scotland Group Plc had dismissed some Singapore brokers who were allegedly
involved in the scandal.
Meanwhile Bank Indonesia had ordered local banks to make onshore
reference rate for domestic trading of Rupiah. BI also unberscored prohibition
for Banks in Indonesia to play at NDF. Outcome of investigation on NDF it was
unveiled that most of the players were doing trading of Rupiah.
From the above illustration it was apparent that positive sentiment for
Rupiah was Scared while the Europe factor was
still haunting so Rupiah value would be in the range of Rp9,650 –
Rp9,680 per USD with the tendency to stagnate.
The Capital Market
Index of IHSG only inched up on the first session of trade last weekend
[1/3], it even dived to the red zone, before finally moving up again and was
closed to inch up by 0.01% to the level of 4,796.46. transaction value for half
a day came to Rp3.54 trillion with total volume of shares sold amounting to
4.04 shares. 106 shares progressed with IHSG while another 107 shares sank and
110 shares remained stationary.
There were eight sectors moving in the green zone. The industrial sector
took the lead with strengthening of 1.56%, while the sector that sank deepest
was the financial sector at minus 1.23%. However index was predicted to slip
into unstable phase. Previously IHSG soared up by 55 points due to acts of
buying premium shares especially big banks index moved closer to 4,800.
IHSG movement was following regional and global stock markets. Buying
spree heightened in some premium shares. All of the sectoral indices in the
stock market hall strengthened due to acts of buying. The heightening acts of
buying made this record breakable in one single day. Shares of the banking
sector took the lead in strengthening process index of shares of the financial
sector which jumped up by 2.09%. There was no more sectoral index which fell
into the red zone.
Asian stock market still resisted in solidarity in the green zone for
the acts of buying by investors after having positive sentiment from the global
market. Japan’s stock market took the lead in strengthening process, leaping
forward by more than 2 percent.
Index of Composite Shanghai rose by 14.21 points [ 0.61%] to the level
of 2,327.43 index of Hang Seng jumped by 273.84 points [ 1.21% ] to the level
of 22.850.85 index of Nikkei 225 buoyed by 243.40 points [ 2.16% ] index of
straits Times strengthened by 4.26 points [ 0.13% ] to the level of 3.285.38.
Meanwhile the Wall Street stock market ended flat to close session last
Thursday [ 28/2 ] following the thin growth of US economy in quarter IV-2012.
In spite of limited growth, it was better than analysts estimate. The point was
that many analysts estimated the US economy was contracting at the end of 2012.
Data of US unemployment which reduced proved economic growth.
However, index of S&P 500 could still cover-up February positively
and strengthened for four consecutive months. Meanwhile Dow Jones which was
only a few points away from its highest level of all times, ended up flat.
Since early this year, Dow Jones had strengthened by 7%. Dow Jones’ highest
record of all time was 14. 164.53 attained in October 2007, while the highest
intra-day was in October 11, 2007 at 14.198.10.
To break a record it was necessary to look at positive economic data
consistently in the USA as well as economic stability in Europe. Those were two
hard pre-conditions to fulfill in a short time. During closing session on
Thursday [ 28/2 ], index of Dow Jones weakened by 20.88 points [ 0.15% ] to the
level of 14,054.49 index of Standard & Poors 500 lost 1.31 points [ 0.09% ]
to the level of 1,514.68 Indes of Composite Nasdaq dropped by 2.07 points [
0.07% ] to the level of 3,160.19.
The global economy was predicted to improve by 2013, supported by US
economic growth which was getting better and reduced long term risk. US
economic growth was projected to reach 3% in 2013 and economic recession in
Europe would predictably subside by Semester 2, 2013. US economy would be
disturbed by increased tax especially taxes on high income. However provision
of employment opportunities was stabilized which increased spending. Meanwhile
fiscal risk in Europe would be reduced.
Today focus of the world’s attention was more on China, whose economy
excelled over Japan and which was expected to help global economy. China’s
economy had been saved by the Government’s stimulus. China’s economy this year
was predicted to reach 8.3% against the previous 7.8% in 2012.
As with the Indonesian stock market, it was expected to still continue
strengthening in the good momentum in the past six months. However, inflation
and weakened Rupiah would bring pressures. Performance of premium shares of the
property sector included in LQ45 listing posted highest economic growth through
January-February 2013.
According to analysts, investor’s appreciation for the property sector
was triggered by investors’ reluctance to speculate and choosed more shares of
emitents which were potential to book positive performance like property
emitents. The property sector took the lead in gaining return of 33.97%on the average
by year-to-date per February 2013. Four of the top-ten LQ 45 shares with
highest performance were property shares.
There were four factors which motivated invertors to make accumulated
buying of property shares in early 2013.
Firstly, demographic structure which was dominated by young age bracket
who needed to by a house supported by increased purchasing power.
Secondly, the high income potential of property emitents due to backlog
[ under supply ] accumulated in the past few years.
Thirdly, Policy of Bank Indonesia and the Government on Loan to Value
[LTV] which had no significant impact on national property sales.
Fourthly, the total area of land in land bank owned by leading property
emitents and low debt ratio. These were the factors being taken into
consideration in accumulating property shares in early 2013.
The financial sector was in second place in average return income of
19.28%. Some leading emitents as index propeller in this sector were PT Bank
Central Asia Tbk [ BBCA], PT Bank Danamon Indonesia Tbk [ BDMN], Bank Mandiri,
PT BNI Tbk [ BBNI ] and Bank Rakyat Indonesia. Meanwhile average return of
shares in the agro-business sector still slumped by 6.6%. The main factor of
downturn in the agro-business sector was pressures on CPO price which was the
main contributor to income of agro-business companies.
Broadly speaking, in spite of some hindrancing factors, analysts were
optimistic that IHSG would be able to break through the level of 5,000 by end
of this year. They saw many positive sentiments which supported increase of
index this year, among others, controlled inflation, stability of Rupiah
exchange rate value, high domestic consumption, sound emitent’s performance,
and acceleration of infra-structure development process. This year IHSG was
predicted to be in the range of 4,790 – 4,810 with tendency to move flat. (SS)
Business News - March 06,2013
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