RUPIAH AND IHSG ON THE GO AS ECONOMIC INDICATORS TURN BETTER

Rupiah was again being tested of its strength last weekend [7/3]. Rupiah would still strengthen moderately while waiting for the latest US economic data. Weakening of USD continued which brought strength to nearly all Asian currencies.

Rupiah strengthened remarkably to Rp11,400 per USD along with increase of IHSG index. However, some US economic data were seen to improve and yield of US Treasury increased by 3.52 basic points. The market was still waiting for further confirmation of non farm payrolls data and US unemployment rate. Rupiah’s room for strengthening was predicted to narrow down, although USD tend to weaken.

On the other hand Indonesia’s forex reserves which was announced to increase strengthened expectation of Rupiah strengthening. Market’s high expectation for incoming foreign direct investment injected positive sentiment to the local stockmarket. Economic package policy phase III which would soon be launched stepped up investors’ trust.

The Moneymarket

Rupiah was steadily gaining strength. During transaction in morning season [7/3] Rupiah strengthened to the position of Rp11,394 per USD, an increase of 0.18%. Even since Thursday [6/3] Rupiah already strengthened to the position of Rp11,482 per USD. Meanwhile BI’s mid-rate showed Rupiah was inching up by 0.22% to Rp11,554 per USD – the strongest level since November 2013.

Rupiah strengthening was because many investors released their USD which was previously regarded as safe heaven. Moreover as political unrest in Ukraina subsided, many investors released their USD to shift to more risky assets like Euro currency, Pound sterling, Australian Dollar, and Rupiah. Besides, some unimpressive US economic data last February put USD under pressure. Furthermore Rupiah movement depended on announcement of BI rated this week.

Bloombreg’s data showed that foreign capital which re-entered Indonesia’s moneymarket totaled USD 2.9 billion. This was in line with Indonesia’s current transaction [DTB] and inflation which cooled down last February. Rupiah strengthening was driven by decision of Singapore’s Monetary Authority who withdrew spot transaction reference and non-deliverable [NDF] for USD/IDR per March 27, 2014.

ABS Benchmark Administration Co. Pte. Ltd. [ABS Co] and the Singapore Foreign Exchange Market Committee [SFEMC] on February 18, 2014 announced termination of USD/IDR benchmark spot today known as “IRDVWAP” on March 27, 2014. ABS was beginning to refer to JISDOR set up by BI.

In short, Rupiah and strengthened in line with inflowing capital. It was a positive situation to build investors’ self confidence. Understandable because Indonesia’s Current-Transaction Deficit ratio in quarter IV 2013 was posted at 1.98% against GDP. This figure was lower than of the previous quarter at 3.85% of GDP.

Inflation of February 2014 last was posted at 0.265 lower than the previous month at 1.07%. Hence by year-on-date Indonesia’s inflation was posted at 7.75%.

The Central Statistics Board [BPS] announced export of January was posted at USD 14.48 billion or down by 5.79% against same period last year. Export of oil-gas was posted at USD 2.5 billion and non oil-gas USD 11.98 billion. Apparently import reduction was slower than export reduction. Import of September was down by 3.46% to become USD 14.92 billion. Total import of oil-gas was USD 3.55 billion. While non-oil was USD 11.36 billion. Downturn of export was mainly on account of Government’s prohibition to export raw minerals since January 12 last.

Announcement of inflation figure and Deficit in Current Transaction [DTB] which bettered was responded positively by the market. The data was expected to bring strengthening effect on Rupiah. Moreover Retail State Sukuk or SUKRI SR-006 had exceeded demand. Until closing of offering, the total application that entered through 28 SR-006 Sales Agents totaled Rp19.354 trillion.

Announcement of sales income was based on the following consideration: in accordance with APBN Budget financing target and strategy of profile of State Promissory Notes [SBN] which was due by 2017 and to give room for release of other SBSN State Promissory Notes. For information, turnover of SR-006 was 8.75% per year by fixed rate. Date of release would be March 5, 2014 and due date on March 5 2017. Sales of SR-006 with attractive return stimulated dollar owners to convert their Dollar to Rupiah to buy Sukuk.

Meanwhile hot foreign money were starting to flow in heavily at the domestic market; this was probably the reason why Rupiah exchange rate value strengthened since February 2014. Still the Government and BI must be cautious as foreign money might flow out any minute with direct effect of Rupiah weakening.

BI’s data had it that foreign capital inflow of portofolio category by third week of February 2014 was around Rp31 trillion or USD 2.67 billion, consisting of around Rp 22 trillion in SBN Promissory Notes and shares amounting to Rp 10 trillion. Referring to 2013, in the first quarter, foreign portofolio capital inflow was USD 2.76 billion, consisting of around Rp 22 trillion in SBN Promissory Notes and shares amounting to Rp 10 trillion. Referring to 2013, in the first quarter, foreign portofolio capital inflow was USD 2.76 billion. Till end of Match next, foreign capital that entered the market would increase still more due to Indonesia’s bettered fundamental macro economy.

The potential foreign capital kept increasing since BI had held BI rate low at 7.5% since November 2013, which means that Indonesia’s economy was stabilizing. In the future that amount of foreign capital at the domestic market would be elected and Rupiah would continue to strengthen. Moreover BI estimated that forex reserves would in February 2014 record which was not announced yet.

Apparently Indonesia’s fundamental economy was improving and while deficit in current account which shrunk was the cause of increasing foreign capital inflow which energized Rupiah. BI’s data had it that by third week of February foreign capital that flowed in was Rp31 trillion. Thankfully, Rupiah could be stabilized without having to make intervention, which made BI optimistic that forex reserve would increase again. The position of Indonesia’s forex reserves in January was USD 100.67 billion, an increase of 1.19% against the position per end of 2013 at USD 99.39 billion.

Indonesia’s forex reserves by end of February 2013 was posted at USD 102 billion, up against previous month’s position at USD 100.65 billion and the highest since BI made intervention on rupiah value since June 2013 when foreign investors sold their Indonesian assets as they feared the effect of Tappering Off run by the Fed.

Rupiah chance to strengthen was also supported by BI’s collaboration with the bank of Korea in Billateral Currency Swap Agreement [BCSA]. Signing of agreement took place at BI’s headquarters in Jakarta last Thursday [6/3]. BCSA was a swap of local currencies between South Korea’s Won and Indonesian Rupiah which means that in the future trading between the two countries would no longer use USD as medium; this was an effective was of promoting Rupiah and Won.

The total amount of money included in the BCSA was KRW 10.7 trillion or Rp 115 trillion or equal to USD 10 billion. This agreement would be effective for 3 years and was extendable by agreement between the two nations. The way it had been, trade relations between Indonesia and South Korea had been using USD as benchmark. Notably bilateral trading between Indonesia and South Korea had been growing fast. South Korea was Indonesia’s 5^th biggest export destination country and sixth biggest in terms of import. The total value of bilateral trading was USD 22.8.

It was noteworthy that after holding the title of the worst performing currency in Asia in 2013, Rupiah by the third month of 2014 was notably best performing currency in Asia, as indicated by some bettered economic indicators. Besides the aforementioned positive factors, BI’s initiative to plead State Owned Bodies [BUMN] to manage debt in foreign currencies effectively [as many BUMN borrow money in foreign currency without hedging] could contribute to Rupiah strengthening.

BI had adopted Hedging Strategy to minimize risks. Besides, BI had also been engaged in bilateral swap agreement with central banks of other countries. From the above picture last weekend, [7/3] rupiah exchange rate value would move in the range of Rp11,400 – Rp11,550 per USD. and would continue over this week in the range of Rp11,350 – Rp11,500 per USD.

The Capital Market

Index of IHSG during closing session last Thursday [6/3] strengthened in line with recovery of the regional stockmarket uplifted by subsiding crisis in Ukraina. Index was closed at the position of 4,687,85 strengthening by 0.615 points. Strengthening of index was supported by 168 shares in strengthening process; the remaining 124 shares weakened and 93 shares stagnated. Trade volume came to 5.77 billion lots of shares worth Rp6.97 trillion.

Foreign investors once rusted to walk out at tension heightened in Ukraina-Russia relationship, but with meetings held to discuss the conflict, marketplayers were optimistic that the unrest could be cooled down. Buying spree heightened in some regional stockmarkets including Indonesia. Nine sectors strengthened, including the construction sector. Only the infra structure was trapped in the red zone.

Transaction was in high season with frequency of 266,633 transactions at the volume of 5.885 billion shares worth Rp7.098 trillions. 168 shares went up, 124 shares went down and 93 shares were stagnant. IHSG posted increase of 28 points after foreign investors dared to enter and place their fund in Asian stockamarkets. It all happened after leaders of the Western states held a meeting with Russia to discuss conflict in Ukraina.

During opening session last Friday [7/3], IHSG inched up by 8.609 points [0.8%]to the level of 4,667.781 following market strengthening in Asia. Selective buying was happening in premium shares. Asian stockmarkets were compact to strengthen as foreign investors dared to enter the regional market. Index of composite Shanghai strengthened by 6.49 points [0.32%] to the level of 2,059.58 Index of Hang Seng rose by 123.19 points [0.55] to the level of 22,702.97. Index of Nikkei 225 soared up by 237.12 point [1,59%] to the level of 15,134.75. Index of Straits Times increased by 11.05 points [0.35%] to the level of 3,127.69.

Japan’s stockmarket would predictably strengthen and Index Topix was ready to post consecutive increase, the longest this year. Strengthening of index was on account of weakening Yen, the lowest point in the past 5 weeks. Last Friday [7/3] index of Topix inched up by 0.9% to become 1,239.80. In one week the index was posted to increase by 2.3%. Meanwhile index of Nikkei 225 Stock Average also rose by 1% to become 15,289.99.

One of the factors that triggered weakening of Japan’s stockmarket was weakening of Yen to become 103.07 against USD. besides lessened unemployment data in the USA also served as good news to Japanese index. The shares which increased were among others Toyota Motor Corp which strengthened by 1.2%, Sekisui House Ltd strengthened by 1.5%  and TDK Corp rose by 2.6%. Export-based blue chip shares were bought because of weakening Yen.

This week shares of the Asian stockmarkets were predicted to be strengthening following meeting held to calm down crisis in Ukraina. US Foreign Minister John Kerry had met Russian Foreign Minister Segei Lavrov in Paris for the first time since the crisis erupted. Although no decision was made, meeting would be held again this week in Rome Italy.

President of Russia Vladmir Putin and Germany’s Kanselir Angela Merkel had mad telephone conversation the discuss the scenario toward ending conflict. In line with eased unrest in Ukraina, there was positive sentiment to the stokmarket.

As military conflict in East Europe subsided, investors were beginning to believe that the risk to invest was not too high. Meanwhile Japan’s Yen weakened against USD and Euro which increased positive sentiment in the regional stockmarket. This means in Indonesia the external factor had bettered, giving stimulus to IHSG to strengthen last weekend at around 4,675 – 4,700 and would continue this week in the range of 4,690 – 4,760.

The mass media who reported that investors rushed to draw their capital out of the emerging market in the past few months was an exaggeration. Retail investors prevailed in the process of capital outflow. There was belief that investors evaded the emerging market. Such opinion was mostly based on EPFR data. This was statement made by Alberto Ades, Deputy Chairman of Global economy and Head of Fixed Income strategy, Bank of America Meryll Lynch to the press last Wednesday [5/3].

However the data sample was too small, causing bias on retail investors. To refer on other data resources, it would be clear that there was no such that there was no such that there was so such thing as capital outflow. EPFER noted that at global insurance and Exchange Trade Fund totally came to USD 23.5 trillion. However, tracking of global data by that company concluded that less that 10% fixed income asset was managed globally.

According to Ades, there were three factors which could disprove there was exodus of capital from the emerging market Firstly, the Government and state owned companies of the emerging market Firstly, the Government and state owned companies of the emerging market had issued bonds at new record, responded by strong demand. ING data showed that release of Dollar Bonds by the Government and private companies touched highest level at USD 450 billion in 2013, up from USD 437 billion this year before which also broke record. Early this year, Indonesia drew fund op USD 4 billion from USD denomination bonds, the biggest of its kind in Asia since 1998.

Secondly, in view of foreign participation at the bond market in domestic company, Ades said, it was clear that the situation remained stable since June last year when there was mounting fear of crisis at the emerging market. For example data of ADB showed that foreign ownership at the Rupiah bond market was posted at Rp 32.5% in December 2013 up against 31.6% in June last year.

Thirdly, from discussions with global investment management like Fidelity and Aberdeen Asset Management it was concluded that although retail investors left the emerging market, big investors institutions like Pension Insurance Agency, and insurance companies remained to invest, although downturning compared to a year or two ago. The solution was to expand information resources. Data of EPFER was good for detecting where retail investors would go, but they only commanded over small portion of market; still the data was not strategic enough for analyzing the market for a longer period.

According to Manpreet Gill, Head of Fixed Income Investment Strategy, Foreign Investment and Commodity of Standard Chartered Bank, Ades had valid judgment that investors must closely watch capital as a whole to get a picture, as EPFER was focusing on specific funds of the world.

Since the financial crisis six years ago, Indonesia had become the favorite country of investors. However, Indonesia’s high image in the eyes of investors faded out since mid last year when Rupiah value slumped deeply against USD. Today Indonesia was striving to bounch back on their feet to be golden opportunity for foreign investors to invest in this country.

Indonesia was having economic setback since June 2013 when there was minor monetary crisis. Some other developing countries including India and Brazil were having instability in the capital market and moneymarket. This was another positive statement from CEO of China-Asean Investment Cooperation Fund, Li Yao as quoted by Business Mirror on Thursday [6/3].

Through 2013, the Government of RI adopted a series of policy to stabilize economy, control inflation and ensure sustainable economic growth. However today Indonesia managed to expose magnetic appeal after the Government took sound measures to push up national economy. Bettered economic environment also drew investors’ attention at global level. Indonesia’s economy was not completely recovered, but was slowly on the way to recovery. This country would regain its high position. In fact Indonesia’s economic hindrances offered mode room for negotiation.

However, it was too soon to conclude that Indonesia’s economic disturbances had totally subsided, but there was abundant forex reserves to rely on while the Government had learned a from the financial crisis of 1997 and spontaneously making maximum effort to troubleshoot the problem.

So far Indonesia had been golden opportunity for investors; so regarded because of the population was one of the highest in the world. Indonesia’s economic growth had been also notably fast. Domestic consumption also increased while middle class population increased accordingly. This was not to mention how Indonesia was endowed with abundant natural resources.

What’s more, Indonesia was fully aware of the importance of investment to be more attractive in the eyes of investors. Meanwhile the Government was striving to make Indonesia a favorable place for investing. So the upgoing trend of IHSG index also rests on Indonesia’s strong economic foundation. (SS)

Business New - March 12, 2014