Thursday, 10 July 2014


It might have been a coincidence, but toward Presidential election on July 9, 2014 next. Rupiah exchange rate value and IHSG at BEI were constantly under pressure. Apparently the election seemed to generate negative sentiment, instead to positive sentiment, to the market.

Perhaps political tension was heightening toward H-Day, to make players nervous. Expectations that once buoyed high that the Presidential election would bring betterment was gradually fading out due to flaring support or attack by each back up team of both parties.

Market players were getting confused and passive as black campaigns mounted. Some occurrence had even entered the legal domain as grievances were expressed by people who felt they were disadvantage by the accusations addressed to certain circles. In the end, market players took wait-and-see position until final announcement of election outcome was made by the Election Commission provided that both contestant accepted the announcement.

Market were also trouble by oil crisis triggered by political conflict in Irak. The outburst in Iraq would generate negative effect to other parts of the world the way it happened many times before because Iraq was one of the biggest oil producers in the world. The crisis in Iraq tend uplift USD value as safe haven which would down press Asian currencies including Rupiah

The Moneymarket

Rupiah in inter-bank transaction in Jakarta on Friday morning [20/6] weakened by 20 points to become Rp 11,947 per USD against the previous Rp11,935 per USD. Rupiah depreciation was due to market anxiety over political tension in Iraq which was feared to boost up oil price and disturb Indonesia’s trade balance.

The geo political factor would still over shadow the money market in Asia. If the condition continued for a long time Rupiah would slip back to weakening zone. However, sentiment from the Fed’s meeting [FOMC] outcome on June 17-18 last which kept interest low at 0% - 0.25% was expected ease pressures on Rupiah.

The geo-political factor and Resistance of the Fed’s benchmark rate in the future would bring opportunity to assets in developing countries including Indonesia which promised high return to investors. Players of the money market could grab the opportunity to buy currencies of the emerging markets including Rupiah.

Previously USD exchange rate value fell against other currencies last Wednesday [18/6] as the Fed announced they would keep axing purchasing program of bonds worth USD 10  billion. The fed also lowered extremely growth estimate of 2014, making excuses that severer winter storm had caused US economy to shrink in January-March last.

The fed estimated US economic growth to become only 2.1% to 2,3% this year, descending by 2.8% to 3.0% in last projection last March. The fed stated that indicators of the labor market were generally showing further improvement while consumers’ expenditure was rising moderately but recovery in the housing sector remained slow.

Green buck weakened because Janet Yellen, Governor of the Fed planned to keep bank interest low for long time as the program of bond buying ended. All in all, Euro’s value against USD increased  to USD 1.3569 against the previous USD 1.3543 while British Pound sterling increased to USD 0.9369 against the previous USD 0.9336.

USD was worth Yen 102,09 lower than previous Yen 102.016. USD also descended to 0.8978 Swiss Franc against the previous 0.8998 Swiss France, and inched down to 1.0865 Canadian Dollar against the previous 1.0867 Canadian Dollar.

Pressures on USD breezed out hope for Rupiah to strengthen. This was already signaled in trading on Thursday morning [19/6] when Rupiah exchange rate value strengthened by 63 points  to become Rp11,933 against the previous Rp11,996 per USD. Outlook of US economy which weakened served as catalysts of strengthening at that time. Moreover word was out that America’s current transaction widened to USD 111.2 billion in Q-1 this year and that was one of the negative sentiments to USD.

Somehow Rupiah strengthening was still overshadowed by conflict Iraq which boosted up world oil price. On the road hand, the continuing crisis in Ukraina would jack up oil price. The condition in Ukraina was still the cause of anxiety among investors at home because it could mean extra burden  for subsidizing oil price and indirectly widen trade deficit and current account.

The opinion of analysts, market players and the Governor of BI was in line with that of the Governor of BI Agus DW Martowardojo who said that there were at least three factors which caused Rupiah to weaken, all originating from the external. The first factor was geopolitic tension in Iraq, which triggered anxiety over increasing oil price in the world. The condition in Iraq might trigger outflow of shares and bonds which increased demand for USD.

The second factor was meeting of the Federal Reserve or Federal Open Market Committee
[FOMC] which warned that inflation in the USA was on the upturn which caused market anxiety, and such would accelerate the Fed Rate increasing process.

The third factor was economic development in China and Europe a condition which influenced developing countries including Indonesia. The influencing factor to Rupiah was seasonal buying of forex by retail corporate which they needed for overseas payments, interest payments, dividend payments, reparation, etc.

So it seemed right that toward MEA 2015, BI and the Government pled the people and business people to quote their trading in Rupiah in every transaction in Indonesia. ASEAN was often seen as Uni Europe, but the Asean region could not be perceived in the same way as Uni Europe due to difference in exchange rate value of each respective currencies. In Europe, countries could use the common currency but in Indonesia such was not applicable because each country had their own currency.

Soon when the market was more open, goods and services flew in and out more freely. The capital market had no limit. So Rupiah had to be strong and BI should encourage use of Rupiah in every transaction at home. Indonesia’s market and business players had confidence in Rupiah, the International community would trust just as much.

In Law no. 7/2011 on currency it was mandatory for Rupiah to be used in every transaction in Indonesia, but the us of foreign currency for transaction in some regions in Indonesia was still commonplace, and law must be held up by law enforcers.

From the above picture, Rupiah was at the level of Rp 11,900 – Rp 12,000 per USD during closing session last week [20/6]. Pressures on Rupiah was continuing this week so Rupiah was project to move in the range of Rp 11,850 – Rp11,950 per USD with tendency to inch up.

The Capital Market

From the above picture IHSG at BEI last Friday [20/6] inched up by 11.29 points or 0.23% to become 4,875.57 being uplifted by external factor, while index of 45 premium shares [LQ 45] inched up by 2.24 points [0.27%] to the level of 822.77. Technical factors elevated BEI index where markets players again accumulated shares which were corrected during transaction on Thursday [19/6].

Amidst unstable stockmarket, marketplayers took to adopting short-term strategy to keep assets from being enroded significantly, in case assets moved in consolidation, so marketplayers would be selective enough in choosing shares and BEI index tend to move the limited way around 4,855 – 4,905 in closing session last week [20/6].

Meanwhile some stockmarket in the region which strengthened served as driving force to BEI index. Strengthening of the regional Stockmarket was in line with statement of the Fed that US economy was in recovery lane so most likely the Fed’s interest would be maintained at low level for sometime  ahead.

The Regional stockmarket, among others Hang Seng strengthened by 32.75 points [0.14%] to the level of 23,200.48, index of Nikkei rose by 14.66 points [0.10%] to the level of 15,375.82. However index of Straits Time weakened by 2.66 points [0.14%] increase of IHSG was thanks to selective buying which were corrected the day before. Unfortunately strengthening of IHSG was in reserve to Rupiah which slumped.

Furthermore during closing of session I last Friday [20/6] IHSG inched down by 8.646 points [0.18%] to the level of 4,855.627. Meanwhile index of LQ 45 inched down by 1.583 points [0.19%] to the level of 818.945. Investors who were hunting shares joined the selling spree, but not all shares sectors were corrected, such as shares in consumers, mix industry and manufacturing sectors.

All quiet on the transaction front frequency of transactions only posted at 82.990 times including 1.459 shares worth Rp1.613 trillion. 104 shares increased, 125 went down and 72 shares remained stagnant. Weakening of regional currency against USD posed as negative sentiment to Asian stockmarkets.

Meanwhile many shares at the Wall Street stockmarket strengthened during mid week last week [18/6], making index of S&P 500 to break through its highest record. The Fed’s promise to keep interest at lowest level posed as positive sentiment.

The Fed also predicated economy of the USA tend to stabilize this year. The statement, which heartened investors was made by Governor of the Fed Janet Yellen. Previously, investors were anxious that The Fed might change policy drastically in the near future. It turned out that the prediction was wrong.

During closing session last Wednesday, index of S&P 500 increased by 14.99 points [0.77%] to the level of 1,956.98 which was the highest record of all times as they score highest on June 9 last. Index of Dow Jones rose by 98.13 points [0.58%] to the level of 16,906.62. Index of Composite Nasdaq increased by 25.60 points [0.59%] to the level of 4,362.84.

In view of development at domestic, regional and global stage, it seemed hard for IHSG to reach the 5,000 level in the near future. By closing session last weekend [20/6]. IHSG was predicate to be at around 4,362 – 4,895 with tendency to weaken. Meanwhile for this week, IHSG was still under pressure, moreover considering political sentiment at home so IHSG was project to be at around 4,850 – 4,950 with little change to move. (SS)

Business News - June 25, 2014

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