The market was focusing attention on government’s certainty to increase price of subsidized oil. God permitting, on June 17th 2013 next the Government and House would jointly approve price increase of subsidized oil. This step was believed to inject positive sentiment to the market so Rupiah exchange rate value and IHSG could be elevated.
The fact was that the increased BI rate of 25 bps last week was not effective enough to strengthen Rupiah and jack up stockmarket index. So now all it takes was Government’s political will power to increase oil price so all that was well might end well.
The increase of BI rate by 6% was not powerful enough to uplift Rupiah exchange rate against USD which at the interbank forex spot market on Thursday last [13/6] was closed to slump by 25 points [0.253%] to the position of Rp9,880/Rp9,885 against the previous position of Rp9,885/Rp9,860. This weakening was on account of risk aversion and sizable capital outflow from the emerging market.
Apparently BI’s shocking move to increase Bank Indonesia Deposit Facilities [FASBI] and BI rate was still not strong enough to halt Rupiah downturn. Moreover, each of them inly increased by 25 basic points to 4.25% [Fasbi] and 6% [BI rate]. An least an increase of 100 basic points was needed, especially Fasbi to stop Rupiah downturn as Fasbi was rated as more effective.
Risk aversion to save haven assets was in line with expectation of stimulus termination by the Fed. This triggered expectation of the easy money policy of global central banks to lessen which triggered deleveraging of various assets of various monetary sectors. At the same time there was restlessness in US bond yields for tenure of 10 years which still showed increase as the auction of the previous week again signaled significant downturn with bid-to-cover ration of 2.5 which was the lowest figure since August against 2.7 of the previous auction.
Meanwhile yields of US bonds reached its highest level since October 2011 at the position of 2.21%. the impact on the stockmarket was extremely negative which triggered risk aversion, so USD was the market’s target as safe haven currency.
What remained was that the market was waiting for data of US retail and unemployment claim. The result was that USD strengthened against currency for the emerging markets including Rupiah. But USD weakened against most of the world’s leading currencies including Euro. Index of USD inched down by 0.23% to the position of 80.68 against the previous 80.93 Against Euro USD weakened to USD 1,3341 per Euro against the previous USD 1,3336 per Euro.
For information, BI had decided to increase BI benchmark rate by 25 basic points to 6% considering future inflation expectation [13/6]. The Deposit Facility Interest and Leading Facility Interest remained to be set at 4.25% and 6,75% respectively. The policy was part of BI’s policy mix as pre-emptive act to inflation expectation as well as to maintain macro-economic stability and financial stability amidst uncertain condition of the global market.
Meanwhile BI continued effort to stabilize Rupiah in accordance with national fundamental economy while securing forex liquidity at the domestic forex market. BI planned to enhance monetary operations through strengthening of monetary instruments and indepth consolidation of Rupiah and forex. In addition to that consolidations of macro-prudential policies were also prepared to prevent higher risk in certain sectors. Coordination with the Government was fostered with efforts to minimize potential inflation pressure and maintain macro economic stability and financial system.
BI’s policy to increased BI rate was rated as the right move to minimize Rupiah weakening and possible inflation in line with Government’s plan to increase price of subsidized fuel. Tis was BI’s daring act to try to command the market as Rupiah weakened and inflation triggered by new fuel price.
Many circles were hoping that Rupiah weakening was temporary as it was caused by global sentiment and seasonal high demand for USD, as indicated by forex reserves which dropped to USD 105.1 billions in May against USD 107.2 billion in April or equal to 5.8 months of import and overseas debt payment. Analysts and economists recommended BI to solidity their policy in the event that oil price increase was starting to generate broader impact. BI rate could be further increased by 50-75 basic points [BPS] as inflation reached 8.5% by end of year. However, if core inflation was till under control, BI needed only to increase bank interest by 50 bps. Inflation could be lowered if the Government was able to control supply in the market.
Eventually strong Rupiah would improve domestic perception and ease external negative sentiment which would elevate Rupiah hopefully to the level of Rp9,600 per USD by year end. Apparently President SBY had made a daring move to increase fuel price toward 2014 election he was sincerely willing to the do it as he did not wish to burden the next President. President SBY expected the Parliament to approve the RAPBN-P State Budget 2013 which was proposed by the government. SBY expected that by June 17 dissected of 2013 State Budget would be accomplished.
The Government was also trying to comport the market who were uneasy about the Government’s indecision in increasing fuel price, which had weakened Rupiah. Finance Minister Chatib Basri stated that the market needed not be anxious about oil price increased since the Government’s stance was clear: to increased rice of subsidized oil. According to the Minister, anxiety had suppressed Rupiah value.
Finance Minister Chatib was optimistic that Rupiah would regain strength after increase of fuel price and improved trade balance. As known, weakening of Rupiah to as low as Rp10,000 per USD was not overlooked by President SBY; at lease there were two aspects which contributed to Rupiah weakening.
Firstly, monetary pressure at regional and global level which more or less had its impact on Rupiah exchanges rate value.
Secondly, the Government’s decision to increase fuel price. Also noteworthy was pressures on IHSG which contributed to Rupiah weakening. However, to increase fuel price which was already stipulated by the Government would at least bring certainty to investors about Government’s policy to reduce fiscal deficit and trade balance.
Pressures on Asian currency including Rupiah would not ease so soon following confirmation of the Standard & Poor’s rating agency which upraged America’s credit level from negative to stable, based on the least fiscal risk condition.
There was some sort of positive sentiments which helped Rupiah strengthening following Government’s plan to issue State’s Retail Bond [ORI] seri 010 this year which was estimated to drum up public’s attention. However, the public’s zest would be influencer by BI rate which resulted in ORI 010 coupons. Analysts estimated that the ORI 010 coupon would be around 6.25% to 7,25% after increase or BI rate by 25 bps to attract investors.
There was a tendency of growing public interest in ORI bonds each time the Government issued a new series The reason was that in terms of return ORI was more profitable than fixed deposit; besides, in the secondary market ORI transaction was more magnetic while the liquidity was high.
However, the Government must try to keep public demand high by releasing coupons with rates adjusted to BI rate. Market risk was predicted to be high in time to come while inflation would soar high due to increase fuel price. In the end BI was expected to stabilize Rupiah at around Rp9,800 per USD ; or else it could be extremely dangerous to APBN State Budget and to BI balance sheet itself while forex reserves would constantly be eroded.
BI also had absorbed State Promissory Notes [SUN] worth Rp1 trillion in the auction last week in the effort to maintain stability to the monetary system. Auction yields was below target of Rp2 trillion was obtained because SUN owners tend to hold or wished to hold their SUN bonds. BI was buying SUN within the framework of stabilization of the monetary system which was closely related to Rupiah exchange rate value which tend to weaken lately.
It was noteworthy that there was growing fear of capital flight back to the developed nations by investors; recovery of US economy might mean the end of Quantitative Easing [QE] by the US Central Bank. Global investors believed that financial crisis in Europe and the USA had subsidized. Under the circumstances the market feared there would be backflow of capital from the emerging markets to the established market.
Of the various assumptions as described above, Rupiah in the closing session of last week [14/6] would move in the range of Rp9,880 – Rp9,900 per USD with tendency to stagnate. This week Rupiah was predicted to move in the range of Rp9,900 per USD with tendency to strengthen.
The Capital Market
In tandem with Rupiah which tend to weaken, IHSG fell by 90 points under pressure of foreign investors’ selling spree. Not a single sectoral index managed to escape from the red zone. To start opening session on Thursday morning [13,6], IHSG sank by 99.843 points to the level of 4,598.041 being dragged by negative sentiment from the regional and global market. Foreign investors were again on net sell.
The moment sessions started, index instantly nose dived to the red zone touching the bottom line at 4,568.117. Pressure to sell was still high in the last sessions. During last closing transaction in session I, IHSG fell by 79.898 points [1.07%] to the level of 4,568.117. Pressures to sell was still high in the last few session. During closing transaction in session I, IHSG fell by 79.898 points [1.70%] to the level of 4,617.896. Indices were still trapped in the red zone on account of pressures to sell. Not a single sector escaped foreign investors’ craze, all sectoral indices were corrected, the correction being more than more than two percent on the average.
To end sessions last Thursday [13/6] IHSG was closed to fall by 90.221 points [1.92%] to the level of 4,607,663. Meanwhile index of LQ45 was closed to dive by 18.032 points [2.32%] to the level of 759.495. IHSG downfall happened as Bank Indonesia increased BI benchmark rate to anticipate slump of Rupiah against USD.
Consumer-goods based premium shares had become the target of sellers, the same was with second tier shares of the various industry sector. Some domestic investors were doing acts of buying. Again foreigners prevailed in the act of selling. Foreign investors by this afternoon were seen as doing foreign net sell worth Rp1.358 trillion at the regular market and by negotiations.
All of the shares in Asia were not even close to the green zone until closing session today. Japan’s stockmarket jumped on a free fall more than 6% after Yen’s value strengthened highly against USD. Index of Composite Shanghai dropped by 62.54 points [2.38%] to the level of 2,148.35. Index of Hang Seng dropped by 467.62 points [2.19%] to the level of 20,887.04 index of Nikkei nosed drived by 843.94 points [6.35%] to the level of 12,445.38.
The premium stockmarkets in Europe joined the free fall after seeing the stockmarket in Japan falling by more than 6%. Negative sentiment came from the USA as fear mounted that the Federal Reserve would cancel the stimulus program. Index of the leading stockmarket in London, FTSE 100 dropped by 1.22% to the level of 6,222.41 while DAX 30 in Frankfurt fell by 1.47% to the level of 8,023.37 Index of CAC in Paris shrunk by 1.24% to the level of 3,476.62.
The leading index in Tokyo: Nikkei, fell by 6.35% to the level of 12,445.38 this weakening was on account of Yen’s value against USD which made exporter’s to collapse. This weakening at the Japanese stockmarket eliminated one fifth of the points obtaines since last May.
Fear that the stimulus would be withdrawn by the US Central Bank was the main trigger. The point was that the stimulus program known as quantitative easing had contributed to the recovery process and had driven the US economy to grow positively. Many market players feared that the financial industry was still unable to stand on their own without stimulus aid. Yet Japan already had their own economic growth program known as Abenomics by initiative of Japanese Prime Minister Shinzo Abe.
Although in fact the Fed and Bank of Japan would as yet still not withdraw their stimulus program in the near future, investors seemed to have decided that the right strategy was just to step out of the financial market for a while. Even since this cancelation of stimulus was mentioned by the Fed, return of US bonds already rose and many of them walked out of the developing countries where the currency value kept on weakening against USD.
At the New York stockmarket, index of Dow Jones industrial Average slumped by 126.79 points [0.84%] to be closed at 14,995.23 S&P 500 based index dropped by 13.61 points [0.84%] to become 1,612.52 while index of composite technology Nasdaq lost 36.52 points [1.06%] to become 3,400.43 Share of the financial sector was under pressure. American Express shares suffered downturn of 2.4% while bank of America dropped by 0.5%; JP Morgan weakened by 0.6% and Citigroup fell by 1.0%.
Today foreign investors tend to withdraw their capital after index of Dow Jones entered the slowdown zone. However, the condition was reasonably good for a healthy market as the value increased and correction was necessary. Today Indonesia’s stockmarket was fundamentally good and prospective. By projective, outflow of foreign capital from Indonesia’s stock market was only temporary and the investors would soon return.
The local stockmarket authorities were not afraid of capital outflow from Indonesia in the past few days. Reasonable because the Indonesia stockmarket was a magnetic place for foreign investors in line with growing emintent’s profit which was notably positive and high return-on-equity [ROE] in BEI security exchange.
It was projected during closed session last week [14/6] IHSG would move in the range of 4,600 – 4,620 with tendency to stagnate. Over the week IHSG was predicted to strengthen in the range of 4,625, being supported by positive sentiment of increase price of subsidized fuel which created new optimism stockmarket. (SS)
Business News - July 19,2013