Over the week, the issue of price increase of subsidized oil would still be the investor’s attention. The moneymarket would react, and so would the stockmarket. By logic of the market, supposedly increase of oil price would be responded positively.
However, the global factor would also determine domestic market activities especially in regard to two main issues: global economic slowdown and the possibility of the fed lowering the fiscal stimulus gradually.
The combination of domestic and global factors would influence activities of the local moneymarket all through the week so it was difficult to make any protection whether on the Rupiah side or stockmarket side.
Early last week, Rupiah movement ignited suspense, as Rupiah value again jumped up to above Rp100,000 per USD. Other Asian currencies also weakened against USD [21/6]. Rupiah weakened by 0.51% to the level of 10,033 during early opening session.
Some leading currencies in Asia also joined the downturn like Singapore dollar, the Philippines peso, Malaysia ringgit, and Thailand’s bhat at different weakening rate. Toward afternoon session, Rupiah strengthened to the level of Rp9,920 against the position on Thursday [20/6] at Rp9,900 per USD.
Extra protection by BI kept Rupiah from sinking any deeper, which weakened only by 25 points against USD. Meanwhile the domestic bond market seemed to be under pressure in terms of return although BI continued to stand by and bought them. In fact last week Indonesia’s moneymarket was disadvantage by uncertainty of oil price until the government finally announced oil price increase on June 21, 2013.
The fact was that USD soared high against world’s leading currencies including Rupiah, after the Fed’s meeting who announced that the risk of economic slowdown and unemployment in the USA had ceased. Strengthening of USD was supported by Governor of the US Central Bank Ben S. Bernanke who stated that the Fed might reduce bond buying’s by end of year and stop it completely by mid-2014 if economy continued to improved according to projection. The Fed was quite optimistic about America’s economic growth, progress in the labor market and Housing would serve as reference to reduce the monetary stimulus program.
Bernanke’s remark made USD jump up to its highest level in the past week against Yen. USD also strengthened against most of the leading currencies including Euro. Against Euro, USD strengthened to USD 1.3215 against the previous USD 1.3294.
Broadly speaking Rupiah exchange rate value against USD was still unstable, and recently fluctuating in the range of Rp9,800 – Rp10,000 per USD. Originally weakling of Rupiah value should b in time when the government announced oil price increase last week, but apparently the government only announced the fuel price increase on June 21,2013
The Asian currencies which were most vulnerable to capital flight was to those countries having deficit in their trade balance. The sensitive Asian currencies were India Rupee, Indonesia Rupiah and Australia Dollar. To anticipate the after effect of global economic restlessness in line with the plan to reduce stimulus of Quantitative Easing by the Fed, the Government of Ri was expected to be sure-footed and swiftly make the necessary decision.
Lately Rupiah downturn went as low as Rp10,000 per USD due to increased capital outflow. In this case BI already had the early warning system whereby to detect the potential economic outburst with its predictable affect on Indonesia. Somehow this BI instrument would be of no use if the government were not spontaneous in making decisions.
The impact o global economic turbulence might come late, or sooner than expected; so to anticipate the after effect of this global turbulence, supposedly the government had the courage to make decisions. The instrument to anticipate turbulence was fiscal on the government side, and monetary on BI’s side. The two authorities: the ministry of finance and BI, must foster sound coordination in making the right decisions.
Although the government finally decided to increase fuel price, the actions were rated as mush too slow. The result was that Rupiah was black and blue. The government stipulated the new price for subsidized oil at Rp6,500 per liter for benzine and Rp5,500 for solar oil. The Ministerial Regulation as legal base for the implementation of oil price increase was already signed.
In regard to that matter, BI predicted inflation rate would increase by 2.2% - 2.4% in the first 3 months after the increased price of subsidized oil. BI predicted that inflation would turn loose in the first month since increase of fuel price, but begin to gradually subside in the following months. By the above picture, for this week Rupiah was predicted to move in the range of Rp9,875 – Rp9,925 per USD with tendency to inch up.
The Capital Market
Just like suppressed Rupiah, IHSG also slumped by 79 points as anxiety mounted about global economic slowdown. There were selling sprees all over the regional stockmarket. During pre-opening session last week [21/6]. IHSG fell by 79.751 points [1.72%] to the level of 4,550.243 while index of LQ45 fell by 20.156 points to the level of 740.448.
Furthermore during opening session last weekend [21/6] IHSG was opened to slump by 119.806 points [2.37%] to the level of 4,520.188 while index of LQ45 was opened to sink by 26.924 points [3.54%] to the level of 733,680. So hectic was the selling spree that all sectoral index was on fire and under severe correction. Meanwhile index of LQ 45 fell by 26.392 points [3.47%] o the level of 734.21.
Even a day before [20/6] IHSG was corrected by 141 points following selling spree by foreign investors and index instantly fell to the level of 4,600. Anxiety over economic slowdown in China and the possible ending of stimulus by the Fed made shares at Wall Street sink quite deeply.
In Asia, stockmarkets slided down simultaneously to the red zone in response to the negative sentiment at the global stockmarket, more than 1% on the average. Index of Composite Shanghai fell by 32.24 points [1.55%] to the level of 2,051.79. Index of Hang Seng fell by 338.20 points [1.66%] to the level of 20,044.67. Index of Nikkei 225 sank by 252.92 points [1.94%] to the level of 12,761.66. Index of Straits Times was axed by 42.37 points [1.35%] to the level of 3,090.89.
The pressures on the domestic stockmarket which paralyzed price of share at BEI originated from external negative sentiment. In fact the condition and prospect of the capital market was positive as indicated by performance of domestic emitents which posted growth up to double digit. This indicated positive domestic economy which had its impact on the capital market.
The Fed’s action of trying to reduce stimulus to reduce stimulus to reduce bond’s buying’s in American, and the indefinite fuel price increase in Indonesia were reasons for foreign investors to walk out of the stockmarket. Form Indonesia’s viewpoint, to neutralize negative sentiments it was necessary to take educative measures to local marketplayers besides increasing the number of investors. As known, domestic investors were low by quantity, only 1% of the population which was posted at 242 million people.
In fact the marketplayers were disappointed about the Fed’s decision to reduce buying of US bonds in tandem with the notable recovery of US economy. The result was that today marketplayers tend to be reserved and take the profit-taking stance of highly capitalized shares.
Evidently last Thursday [20/6] IHSG BEI was closed to drop by 176.66 points or 3.68% to the position of 4,629.99, while LQ 45 weakened by 35.29 points [4.43%] to the level of 760.60. The pressure on the domestic stockmarket was on account of negative external sentiments.
Moreover the Fed’s actions and uncertainty of oil price increase were reasons for foreign investors to walk out of the stockmarket. Foreign investors rushed to sell their shares in response to the negative sentiments, while domestic investors followed the trend by doing the same.
Premium shares which were highly capitalized were subject to selling spree, to make IHSG lose high point. However, there was still one industrial sector which had the potential to strengthen, i.e. the agriculture sector. Not just Asian stockmarket was under pressure, fear of economic slowdown in China and the possibility of the Fed ending the stimulus program made Wall Street sink quite deeply.
Wall Street was deeply corrected after Bernanke’s remarks signaled ending of stimulus starting this year. In Thursday session last, index of Dow Jones fell by 354 points [2.3%] to the level of 14,758.32 while index of S&P slumped by 2.5% to the level of 1,588.19 and Nasdaq dropped by 2.3% to the level of 3,364.63. The condition would continue over the week until there was clarity about reduction of bond buying by the Fed.
Apart from suspended oil price increase and pressures by the Fed, in fact the domestic stockmarket already had its positive sentiment from BI’s decision to increase BI benchmark rate from 5.75% to 6% last week which was rated as positive signal of national economy which had its positive impact to Indonesia’s economy for the long run.
For this week IHSG was predicted to strengthen after deep correction last week. IHSG was predicted to move in the range of 4560-4640. Certainty of fuel price increase which was already announced would bring investors back to the stockmarket. (SS)
Business News - June 26,2013