GOVERNMENT EXPECTED NOT TO BE INDECISIVE ABOUT OIL PRICE POLICY

Soon by end of April and all through May, market players would wait with faster heartbeat the announcement of Government’s policy to increase price of subsidized oil. For over a year the issue had been hanging on air and so far there was still no clarity about the decision to be made.

               

Business players and economists were in sound position and had stated loud and clear that the Government should immediately increase price of subsidized oil with the objective of healthening fiscal. If the Government did not decide anything, the budget of current year would have to bear the increased subsidy which would come to Rp315 trillion and this amount might swell to around Rp350 trillion unless oil price were adjusted.

               

Under such circumstance it would be difficult to uplift Rupiah value and jack up IHSG index to move higher than 5,000 as expected.

The Moneymarket

               

Amidst uncertainty of oil price increase external pressures would predictably burden Rupiah since last week end [26/4]. Rupiah was predicted to inch down to Rp9, 720 per USD Previously Rupiah value was still stable at Rp9, 718 per USD in tandem with strengthening of the most of Asean currency.

               

Rupiah value against USD on Thursday [25/4] was closed to inch up by 2 points [0.02%] to Rp9, 713/Rp9, 723 against the previous position of Rp9, 715/Rp9, 725. Rupiah was moving within narrow range due to negative domestic sentiment which was varied.

                 

Analyst saw that after President SBY held meeting with his ministries to discuss oil price increase to reduce subsidy, there was still no definite stipulation. This made Rupiah swing within narrow range. And yet investors, especially foreign investors, had anticipated that if the Government made a firm decision they would respond to it positively because oil price increase would in the long run stimulate GDP growth to soar up by over 7%.

               

Analysts had it that oil price increase in 2009, when oil price was increased from Rp 2,000 to Rp 4, 800 per litre trigged inflation but somehow Indonesia’s GDP could increase to 6% until today, although for the short run it triggered inflation. Unfortunately there was no courage on the Government’s side to make any decision which made the market wait and wait.

               

Moreover, regional sentiment was still uncertainty because the market was still waiting for the decision of Bank of Japan who claimed that they planned to inject big stimulus to be announced by early April as part or economic propeller.

               

The market was expecting that although BoJ planned to maintain benchmark rate, they would still run easy money policy. The result would be change of portfolio from Japan’s investors to Indonesian bonds, which means positive sentiments for Rupiah.

               

Now the market was waiting for the release of UG GDP of quarter I-2013 which was predictably lower than the expected 3.1% when data of US durable goods order was disappointing. All in all USD weakened against most of the world’s main currencies including Euro. Index of USD inched down by 0.43% to 82.67 against the previous 83.05. Against Euro, USD weakened to USD 1, 3060 against the previous USD 1, 3010 per Euro.

               

It was noteworthy that by last weekend America made a statement that probably the Syrian army had applied chemical weapon on the rebels; resulting USD to strengthen which meant initial downturn of Euro. The US officials stated that there was no unanimous conclusion among the intelligence communities in the US, but the Ministry of Defense Chuck Hagel reminded that the use of those deadly chemical war in was “ against war convention” in any war

               

The report triggered anxiety that Washington could interfere more deeply in the Syrian conflict after previous reminder that the use of chemical weapon could mean violation of the “red line” in the war between President Bashar Al Assaad and the rebels.

               

A senior officer at the White House remarked that all options on table would be used if the application of chemistry weapon was confirmed, an euphemism that military action was considered. However, an official of the US Ministry of Defense stated that military intervention would not as yet be used.

               

Meanwhile Poundsterling jumped up amidst news that England’s economy was gaining steam to move back to green zone in quarter I 2013 and managed to escape from recession for the third time since the global crisis of 2008. England’s state of economic recovery was good news to the market.

               

This week, Rupiah was estimated to move in narrow range as the Government remained indecisive about oil price increase. Rupiah was projected to move in the range of Rp9, 720 – Rp9, 745 per USD. Even the good news that foreign investment in Indonesia scored the highest record in the first three months this year did not bring any positive sentiment.

               

The attainment underscored foreign investor’s interest in Indonesia’s middle class which kept growing. The Coordinating Board of Foreign Investment [BKPM] reported the volume of foreign investment in Indonesia over the period of January-March this year increased by 27.2% to become Rp65.5 trillion. This was an increase compared to increase of 22.9 in quarter IV of 2012 when foreign investment reached Rp56.8 trillion.

               

BKPM’s report it that domestic investors invested Rp27.5 trillion over the same period. In the previous year, the figure was posted at Rp 19.7trillion. Total investment of quarter I 2013 in Indonesia rose by 23.8% to become Rp93 trillion. Data of PMA gave the impression that investors were willing to discard the assumption that Indonesia was becoming more protective and was not doing enough in improving bad infra structure.

               

Analyst were optimistic that PMA investment had the potential to reach USD 30 billion per year in the years to come provided the Government were constantly involved in infra-structure building, the problem which had been tormenting Indonesia for long. BKPM were themselves optimistic about attainment of total investment of 2013 which would meet Government target of Rp390.2 trillion against that of last year at Rp313.2 trillion. The notable thing in investment was shift of industry line from plantation to manufacturing.

               

Japan was the biggest foreign investor [PMA] in first quarter of this year with total investment in the automotive sector of USD 1.2 billion. The second biggest investor was South Korea with total investment of USD 800 million and the third biggest investor was Singapore with total investment of USD600 million. Foreign investment over that period included minery USD 1.4 billion, chemistry and pharmaceuticals USD 1.2 billion and metal, heavy equipments and electronics industries USD 1.0.

               

Foreign investor’s interest in Indonesia creased since Fitch Ratings and Moody’s Investors Service promoted Indonesia’s rating from Sovereign Credit to Investment Grade at end of 2011 and early 2012. High consumer’s demand, stable economic growth amidst economic slowdown in advanced countries, and abundant natural resources strengthened Indonesia’s magnetic appeal. According to Mc Kinsey Global Institute in September 2012, increased national income could increase Indonesia’s number of consumers to 90 million in 2030. The figure outnumbered any country except China and India. Business in Indonesia was also highly prospective.

The Capital Market

               

Before the market had any certainty and confirmation of subsidized oil price IHSG was predicted to consolidate in the range of 4, 960-5, 020. The fact was that during transaction on Thursday [25/4] IHSG was closed to weaken by 17.08 points [0.34%] to the position of 4, 994.523. The lowest intraday was 4, 962.442 and the highest 5, 016.035. Now IHSG was consolidating.

               

Even if IHSG dropped last week, it was on account of PT Astra International [ASII] which was released below expectation, minus 7%. And yet ASII constituted a big part of value which was why index sank quite deeply. IHSG only consolidated after considerable increase since early 2013. Therefore it was only reasonable if IHSG consolidated quite strongly; so there was nothing to worry about because it was only minor correction.

               

Undeniably performance of PT Astra International [ASII] for quarter I-2013 slumped. Astra’ sales was 10% below consensus and earning per Share was 20% below consensus. Therefore, it came as no surprise that investors rushed to release a share as such. What made things worse was that pressures on ASII caused other shares to be corrected. Among others PT Gudang Garam [GGRM] and PT Telekomunikasi Indonesia [TLKM].

               

During closing session of last weekend [26/4] IHSG was predicted to be in the range of 4, 965-5, 005 with tendency to move flat. By estimate, IHSG would consolidate until there was Government’s certainty about oil price increase. The market would wait until the first week of May 2013 because rumors had it that price of subsidized oil would be increased on Wednesday May 1 2013. Until then, the market would remain to consolidate.

               

If price of subsidized oil were increased, for the time being there would be correction of IHSG to around 4, 800-4, 850. If oil price were not increased IHSG stood a chance to strengthen to 5, 200. The only thing was if oil price were increased, downturn of IHSG was short term.

               

At the New York stockmarket, index of Dow Jones Industrial Average strengthened by 0.17% to 14, 700.8 and return of 10 year Treasury Bond came to 1, 709% [0.003] last week [25/4]. Shares at the US stockmarket prolonged rally of Standard & poor’s index for the 5^th day, triggered by profit of United Parcel Service Inc and Cliff’s Natural Resource Inc exceeded estimates and lessened unemployment.

               

Cliff Natural jumped up by 15% and UPS went up by 2.3%. Akmal Technologies Inc went up by 18% due to income, which surpassed profit estimate. Furthermore shares of 3M Co dropped by 2.8% when profit was made as targeted and company axed outlook one full year amidst global economic slowdown. Qalcomm Inc lost 5.4% as predicted profit was probably unable meets some analysts’ expectations.

               

One day later index of S&P 500 strengthened 0.4%to become 1, 585.16 in New York. Those indexes rose by 2.8% since 2.8%. Index of Dow Jones Industrial Average also rose by 25.50 points or 0.2% to 14, 700.80 [26/4]. Nearly 6.8 billion shares being traded or 6% more than the average in 3 months. The majority of companies continued to surpass expectations, signaling good trend. Employment data which was better than expectation was just as supportive.

               

Around 59 S&P 500 companies booked income. In their report, the 237 indices released this season, 73% surpassed analysts’ prediction, while 56% failed to meet sales projections. Apparently positive sentiments marked shares sales globally till last week end [26/4]. This occurred as data of unemployment claim in the USA for last week was noted to drop to 16, 000.

               

The claim dropped to 339, 000 a figure below analysts’ expectation at 350, 000. However this downturn did not significantly lessened unemployment figure which was still around 11.7 million people or around 7.6%, still above the Fed’s target of 6.5%.

               

At the same time US inflation also tend to ease down with the downturn of energy price. Index of Dow Jones responded positively to the data. The Fed would run their formal meeting on April 30 – May 1 next. Most probably this Meeting signaled more buying of bonds, increasing stimulus which was today injected at USD 85 billion per month.

               

In Europe stockmarket, index of Stoxx Europe rose to 296.88 during closing session, the highest price since April 2 last. Index was on the rally 4.1% over previous week as company’s profit was above estimate and investors speculated ECB would axe bank interest, which had risen 6.2% all through the year.

               

England’s GDP which was slightly better than estimated at least eased anxiety over new recession in England. Britain escaped from crisis as economy grew higher than expected. England’s GDP inched up by 0.3% in quarter I 2013 or better than economist’s estimation in Bloomberg’s survey [0.1%].

                 

A number of national indices showed strengthening in 13 of 18 stockmarkets in Western Europe. England’s FTSE 100 [UKX] rose by 0.2% whike index of Dax Germany inched up by 1%. BAT rose by 1.2% to become 3, 591 pence. The biggest cigarette producer in Europe said sales for the first quarter including change of currency increased by 5%, disproving expert’s prediction at 3.7%.

               

Vodafone rose by 1.7% to 196.,4 pence after report that Verizon hired a Consultant to anticipate possible offer of USD 100 billion in cash to buy shares of Vodafone in Verizon Wireless.

               

Meanwhile Asian stockmarket last Friday [26/4] was opened flat in line with positive sentiment of the US stockmarket while commodities were compensated by data of consumer price index ex-fresh food Japan which was disappointing in March.

               

From the above picture it was visible that this week IHSG would move in the range of 4, 950 – 5, 010 with the tendency to be stationary. If there was any certainty about oil price increase by this week, IHSG was predicted to nose dive for a while. In the negative case IHSG would move flat. (SS)   

Business News - May 01,2013