DEFICIT IN TRADE BALANCE SUPRESS RUPIAH, BUT IHSG IS MAKING ITS MARK

The development of Rupiah and IHSG would be much influenced by the position of trade balance of Q 2 this year. In the negative case, Rupiah would weaken while it would be hard for IHSG to break through 5,000 level. Forex reserves increasing well, but the attainment was not well responded.

BI posted Indonesia's forex reserves on May 2014 at USD 107 billion, an increase of USD 1.4 bil­lion against the previous month at USD 105.6 billion a position believed to be strong enough to support current transaction which was predictably better that last year.

In fact Deficit in Current Transaction [DTB] in 2013 was USD 29 billion, this year BI expected to reduce it to around USD 25 billion. Early this year BI posted forex reserves at USD 100.5 billion, which bettered last February to USD 102.7 billion and last April increasing to USD 105 billion.

It was noteworthy that the size of Deficit in Current Transaction in Q II would not reach USD 10 billion. At that position, presumably deficit all through the year would not touch that of last year which touched 4.4% of GDP. For that matter BI ex­pected national export could be jacked up to control deficit.

Somehow IHSG seemed to be dynamic in spite of the Presidential election since stockplayers had calculations of their own. Soon or late IHSG might break through 5,000 by support of shares of the consumer's sector toward Ramadhan fasting month and Idul Fitri.

The Moneymarket

Rupiah value against USD inched up by 0.23% to Rp 11,833 during opening session last week end 16.61. Broadly speaking Rupiah seemed to be strug­gling to stand up toward Presidential Election on July 9 next. Rupiah moved in the range of Rp 11,860 - Rp 11.890 per USD. On the other hand USD strength­ened against Yen after the Institute for Supply Man­agement fISM1 reported index of non manufacturing increased to 56.3 against 55.2 the month before.

Euro fell against USD because President of ECB Mario Draghi an friends had set forth all options to be discussed. USD was strengthening against 15 of 16 leading currencies. One report disclosed Amer­ica offered more thn 200,000 jibs in May. Euro was closed at USD 1.3601 per Euro, while Euro against Yen changed slightly at 139.68 per Yen against Euro 139.72 per Yen - while USD was transacted at Euro 102.75 per USD against 102.75 per USD last May.

Volaitility of Euro-USD exchange rate value soared up to 19.7%, the highest in a year against the previous 4.3%. Euro made the longest leap in 3 months against USD, because the market refused ECB's effort to weaken Euro. The Pacific Investment Management Co stated Euro would continue to flow and most probably inevitable.

ECB axed fix deposit interest to minus 0.1 % as estimated by economist. ECB lowered benchmark rate to 0.15% and took some measures including tak­ing long term credit.

Axing of interest by ECB generated positive sentiment to USD, moreover with the Fed's plan to lift up interest level next year. All in all, the develop­ment would suppress Asian currencies including Rupi­ah moreover as US macro economic data was showing improvement.

It seemed reasonable the in the past 3 weeks Rupiah was constantly under pressure in the range of around Rp11,800 per USD last Wednesday [4.6]. Ru­piah exchange rate value against USD was slashed by 0.68% against the day before at Rp 11,890. BI's mid rate also showed Rupiah inching down to Rp 11,810.

One thing was sure Rupiah weakened due to worsening fundamental economy as seen in trade bal­ance in April 2014 which posted deficit of Rp 1.9 billion, way below expectation. There was fear that deficit of Q 11-2014 would be even wider; moreover with the fact that inflation would predictably jump up in line with Ramadhan and Lebaran.

Analysts predicted Rupiah curve-line would tend to stagnate till closing session last week [6/6] in the range of Rp 11,800 – Rp 11,850 per USD. Such would continue this week in the range of Rp 11,700 – Rp 11,800 per USD as related to positive effect from increased forex reserve to USD 107 billion.

On the external side, USD strengthened against global currency. US economic data which continued to improve generated speculations that the Fed would increase interest sooner. It was notewor­thy that the Governor of BI Agus DW Matrowardojo rated Rupiah condition as still tolerable. Fundamen­tally BI was watching performance of Indonesia's balance of payment. Besides BI was also watching subsidy for oil and global economic development par­ticularly weakening China's economy and economic recovery in the USA.

Balance of payment had strong influence on currency exchange rate value. Referring to Deficit in Current Transaction marked by increase of import of goods or service, import would tend to worsen deficit. Not just that, Indonesia's forex condition also tend to influence Rupiah movement. The condition needed deeper insight.

In BI' eyes, Rupiah's weakening to the level of Rp 11,800 per USD was on account of deficit in trade balance. Now the challenge was how to mini­mize deficit so Rupiah could be strengthened. Things was made worse by global condition which was not advantageous to Indonesia, i.e. Tappering Off by the Fed which was a discourse since May 22, 2013,

So BI estimated Rupiah exchange rate value by end of 2014 would be in the range of Rp 11,600 – Rp 11,800 per USD. The monetary authority ana­lyzed that Rupiah low exchange rate value was due pressures from current transaction. Under such cir­cumstances no one could bring Rupiah back to the assumed value for APBN State Budget of 2014 at Rp 10,500 per USD. The Government set Rupi­ah exchange rate value in APBN-P State Budget at Rp 11,700 per USD.

The Capital Market

IHSG index was open to weaken by 0.08% to the level of 4,931.49 during Friday session [6/6]. Furthermore index was still weakening by 0.05% to 4,933.19 of 496 shares transacted, 19 shares weakened, and 468 shares stagnated. Four of 9 sec­tors posted at BEI strengthened with highest increase happening in mix industry 0.52%. The other five sec­tors were weakening with 5 other sectors with low­est downturn happening in the financial sector 0.42%.

Meanwhile in Asia, index of Nikkei rose by 304.03 points or 2.1% to 14,346.20, index of Hang Seng strengthened by 52.53 points or 0.23% to 23,162.19 and index of Straits Times rose by 3,292.39. Index of LQ 45 strengthened by 0.29 points to 832.97. Index of IDX30 stagnant at 425.60 and Ja­karta Islamic Index [A] strengthened to 664.56.

The propelling sectors in IHSG strengthened with increase in basic industry, consumption, manu­facturing, mining, mix industry and trading increas­ing. The sectors of infrastructure, finance and prop­erty were weakening.

Unlike Rupiah movement which tend to de­scend, Rupiah tend more to ascend. Soon or late IHSG index would soar through 5,000 In line with in-flowing foreign capital. Last week end [6/6] IHSG was predicted to move in the range of 4,980 - 5,020 with tendency to inch up.

Only trouble was, increase of IHSG in the past few days did not reflect Rupiah strengthening. Probably the capital inflows did not bring positive sentiment to Rupiah since investors was still anxious about election outcome on July 9 next.

On the other hand, investors had to re evalu­ate to collect certain shares affected by Government policy. The Government would again increase electricity tariff for 6 categories, be it Government, household, or industry. The Ministry of Energy and Human Resources [ESDM] announced that increase of tariff would be effective per July 1, 2014 next.

If electricity tariff were not increased, subsidy for electricity would blow up or else PLN would have fund shortage and finally PLN could not enlist more subscribers as there were 4 million subscribers having new homes without electricity.

In the housing sector, the household catego­ry powered by 1,300, 3,500 to 5,000 volt ampere IVAJ would respectively be imposed tariff increase of 11.36%, 10.43% and 5.70% respectively. The tariff was increased gradually every 2 months as planned per July 1, 2014.

As with non public companies 1-3 category tariff was gradually increased by 11.57% on the av­erage every 2 months by July 1, 2014, predictably to affect subsidy saving by Rp 4.78 trillion. Meanwhile tariff increase for P-2 Government P-2 category or above 200 Kva would be exercised by stages i.e. 5.36% every 2 months per July 1, 2014.

Austerity plan in electricity subsidy came to the amount of Rp 0.10 trillion. For P-3 street lighting category tariff increase was exercised gradually on the average of 10.43% every 2 months per July 2014; whereby to save Rp 0.43 trillion. By the electricity increase, power was expected to be saved. In the future only the 450VA and 900 VA would have electricity subsidy.

Naturally the tariff increase would mean ex­tra production cost to all emitents because electricity was a prevalent price component in the production process. Now the problem was how to find the stra­tegic way to save business.

On the other hand it was apparent that infra structure in Indonesia was still at minimum. Meaning, the potential for infra-structure development was still high. The condition opened business opportuni­ties for companies in the respective sectors. Invest­ment Managers were making the best of this potential by way of launching thematic bond products for infra structure.

There were many investments with underly­ing assets of shares related to domestic infra struc­ture as basic asset. A number if MI were offering infra­structure based shares or related to infra structure development theme.

They choosed infra structure theme for their products as building opportunities for infrastructure in Indonesia was still open wide. Hence it was ex­pected that performance of the related emitents would increase accordingly.

From the above picture, chances for IHSG to strengthen was quite high in the range of 4,990 - 5,030 supported by shares of the consumer's sec­tor, retail, telecommunication and transportation with growing short-term need in the said sectors. (SS)

Business News - June 11, 2014