Monday, 15 July 2013


This week market players still focus their attention on the US Government’s plan through their Central Bank the Fed to gradually stop the stimulus package plan until next year.
In spite of the on-and-off process of the plan, in view of the ever improving US economic data, there were signals that the plan would actually be exercised in the short run, although steps were most probably be gradual.
Termination of the stimulus package would drive outflow of foreign capital, although only on the portofolio sector. Other notable point was that the plan might strengthen USD as indication of bettered US economy. However it was also possible that appreciation of USD would might hamper US economic recovery since an over-strengthened currency was not a good point for uplifting export.
So it was worthwhile to constantly observe Ben Bernanke’s next step, the number one man in the Fed for the short terms as it would be used as reference to scheme up their investment policy.

The Moneymarket
So far the impact of stimulus reduction plan by the Fed was not felt in the moneymarket. At least by Thursday last week [4/7] Rupiah exchange value against USD at the interbank spot market Jakarta was still closed to stagnate at Rp9,935 – Rp9,945, only Rupiah value against USD was last week [5/7] predicted to weaken. The positive expectation. The positive expectation of unemployment level in America was the trigger.     
Rupiah weakening of last weekend was triggered by US unemployment data being released which was posted at 188 thousand or higher by 161 thousand compared to the previous 134 thousand. The same was with index of the service sector which showed increase of sub-components. If they were combined it would show bettered US unemployment data which bettered by 7.5% against the previous 7.6%. Accordingly Rupiah tend to weaken to the range of Rp9,930 – Rp9,975 per USD.
The improved unemployment level in the USA increased probability of execution of the Fed’s stimulus package reduction by the Fed on September 2013 next. The Fed had signaled that stimulus would be reduced if unemployment lessened to 7% and stimulus would be completely stopped by mid next year. Meanwhile if unemployment level lowered to 6.5% there would be consideration to increase benchmark rate.
If unemployment level in the USA showed betterment of employment market in the USA it would mean assurance of USD strengthening due to stimulus reduction scenario. Non farm US payrolls was predicted to grow to 162 thousand and would most probably be revised up to 170 thousand employment data in the service sector strengthened.
Sentiment at the moneymarket would also be influenced by the meeting outcome of ECB Central Bank and bank of England [BoE]. This was related to market anxiety over the upjump of bond’s yield in Portugal. The market responded to the remark of the President of ECB Mario Darghi to win back market’s confidence in the Euro zone.
The political crisis in Portugal, triggered by resignation of the Portuguese Finance Minister and Foreign Affairs Minister turned the Entire Euro zone into an area of risk potential instability in the bond market in combination with varied economic data. The market needed further clarification from the Central Bank.
It seemed reasonable if USD strengthened against Euro during transaction on Thursday [4/7] before ECB announced their monetary policy. Euro value weakened against USD by 0.1% to USD 1,2991 from the previous USD 1,3003. Euro values weakened against Yen by 0.2% to the level of Yen 129.63 investors were expecting ECB to maintain interest rate at 0.5%. The market would also still monitor the situation in Egypt as the military ousted Mohammad Morsi from his Presidential position.
The president of ECB Mario Draghi questioned the political development in Portugal, as political unrest had the potential to hindrance finance austerity plan. Moreover the political crisis had caused bond yields to soar up. The bond yield of Portugal for 10 years came to more than 8% for the first time since November last year. So far USD ensured sound security supported by positive economic condition.
At home, unpleasant news crept in as the World Bank last Tuesday [2/7] axed Indonesia’s growth projection for 2013 to 5.9% against the previous 6.2%. the trigger was among others global economic recovery which was slower than expected and downturn of direct foreign investment in Indonesia.
The World Bank predicted that slowdown of Indonesia’s economy would only happen in this year 2013 predictably to be 5.9%, and economic growth would bounch back by 2014. The World Bank’s quarterly report had it that there was a risk of worse slowdown. Downturn of the world’s commodity prices which kept continuing would hold back Indonesia’s economic prospect due to high dependence on income in foreign currency, profit of the business sector and investment process. Prices of Indonesian commodities had generally had been reduced by more than 20% against the highest price of 2011.
In other parts of the report it was stated that increased price of subsidized oil which was notably high would help to lessen deficit of State’s Budget 2013 which was estimated to save states budget by Rp42 trillion this year.
While serving the growing need for imported oil amidst declining domestic oil production, the reformation of subsidy plan was also an important step to enhance social aid programs to help the poor people to survive for a week or two. The government was hopeful to reduce poverty level to 9.4% by 2014.
The Government of RI projected economic growth at 6.3% this year, having accomplished growth of 6.23% in 2012. The World Bank also predicted inflation to be at 7.2% this year. Soaring inflation was reckoned to be the result of increased oil price last week. The World Bank had been recommending the Government to reduce oil fuel subsidy so the fund could be allocated for development projects, education, and social aid.
Meanwhile the Central Statistics Board [BPS] announced inflation in June was 1.03% and annual inflation was 5.90% [y o y]. This inflation level was lower compared to inflation of June 2012. Inflation through calendar year January-June 2013 was 0.32% while core inflation y.o.y was 3.98%. BPS also reminded that increased price of subsidized oil would show greater impact in time to come, especially in national inflation.
BPS also noted bad news that trade balance in May was showing deficit of USD 590.4 million. Hence by accumulation, trade balance posted deficit of USD 2.53 billion. The deficit was due to import in May amounting to USD 16.66 billion, higher than export which was USD 16.07 billon.
By accumulation, deficit of trade balance came to USD 2.35 billion, consisting of import USD 78.78 billion and export USD 76.25 billion. Deficit in May 2013 was posted at USD 590.4 million due to deficit in oil gas trading USD 568.6 and deficit in oil gas was USD 21.8 million. Meanwhile deficit in oil gas was due to deficit in crude oil trading USD 1.84 billion, whilst trading of oil products was posting surplus of USD 50.7 million and gas was posting surplus of USD 1.22 billion.
By accumulation deficit of USD 2.53 billion consisted of deficit in oil-gas amounting to USD 5.11 billion and surplus in non oil-gas was USD 2.58 billion. Deficit in oil-gas was due to deficit in crude oil amounting to USD 1.51 billion and oil products USD 9.76 billion, while gas was posting surplus of USD 6.15 billion. Surplus of gas was constantly posted, but was not enough to cover up deficit in oil trading.
Good news came from BI who stated that the existing forex reserve today was enough for financing rupiah stabilization effort. This was reflected in the amount of forex reserves which was thankfully still was above international minimum standard. In May 2013, Indonesia’s forex reserve was posted at USD 105.15 billion or down by USD 2.12 billion compared to the position in April 30, 2013 amounting to USD 107.27 billion.
The monetary authority would regularly ensure liquidity of foreign currency by end of month and end of every semester. This was related to increasing need of foreign currency for paying overseas debt of the private sector and repatriation of corporate profit. So far BI had not stipulated psychological limit of forex reserves which, as often mentioned by various circles, that the psychological limit of forex reserves was USD 100 billion. BI also did not set Rupiah exchange rate value at any level, because the most important thing was monetary stability and state of national macro economy.
Although global economic uncertainty was still high, it was expected that pressures on Rupiah value would be reduced in line with US economic recovery. BI saw that the capital outflow going on today was but the habit of hot money, which was commonplace amidst uncertain economic climate. The latest situation showed that capital outflow tend lessen Rupiah exchange rate value which tend to be relatively stable. By the above picture predictably Rupiah would fluctuate in the range of Rp9,900 – Rp9,950 per USD with tendency to inch up.

The Capital Market
Signal of IHSG strengthening at the Indonesia Security Exchange [BEI] was already visible during opening session last weekend [5/7]. Index strengthened by 42 points, being driven by positive sentiment of the regional stockmarket. Shares which were under valuated were again the investor’s target.
During pre-opening session, IHSG rose by 42.010 points [0.92%] to the level of 4,623.943, while index of LQ 45 soared up by 10.699 points [1.41%] to the level of 769.029. Furthermore to start session last weekend [5/7] IHSG was opened to strengthen by 52.199 points [1.14%] to the level of 4634.132. Index of LQ45 was opened to increase by 10.699 points [1.41%] to the level of 769.029.
Acts of net buying heightened since early session. All sectoral index settled at the green zone with average strengthening of more than one percent. A day before, [4/7] IHSG was closed to inch up by 4 points only, although it soared p high enough before. Index was subject to profit taking toward closing session.
No sentiment was reported from the New York stockmarket due to Fourth July Independence Day celebration. Meanwhile stockmarkets in Europe were strengthening significantly, responding to the ECB and BoE policy.
Asian stockmarket were simultaneously moving toward the red zone, being driven by strengthening stockmarkets in Europe. Notable strengthening was seen in some regional stockmarkets like Japan and Hong Kong. Index of Composite Shanghai rose by 8.92 points [0.44%] to the level of 2,015.02. Index of Hang Seng soared up by 286.29 points [1.40%] to the level of 20,754,96 index of Nikkei 225 rose by 176.36 points [1.26%] to the level of 14,195.29. Index of Straits Times strengthened by 21.28 points [0.68%] to level of 3,168.40.
Accordingly, IHSG was predicted to strengthen during last session last week in line with positive sentiment at the regional stockmarket. IHSG during closing session last weakened [5/7] was predicted to be in the range of 4.625 – 4.650.
Meanwhile stockmarkets in Europe strengthened, stopping downturn for two days as investors were waiting for the announcement of interest rate level of ECB and BoE. Index Europe 600 strengthened by 0.6% to the level of 287.22. Index of Standard & Poor’s 500 rose by 0,2% while index of MSCI Asia Pacific increased by 0.4%.
Europe stockmarket was having moderate increase during opening session as investors reacted to Asia’s recovery. Economic projection by Bloomberg had it that 61 out of 62 economist estimated that ECB would still not change benchmark rate.
It was noteworthy that there was no positive sentiment from the domestic side; even economic projection being axed by the World Bank turned out to be bad news. It was not an exaggeration to say that BEI authorities regretted candidate emitents’ decision to postpone IPO while they had spent sizable amount of money in the process.
However BEI left it all to the candidate emitents’ decision because as authority of the capital market BI was in no condition to interfere about IPO’s execution. The only thing was BEI would continue to convince would be emitents that the domestic stockmarket industry still had room for growth, which means that IPO might bring maximum profit.
BEI was in no condition to interfere companies in terms of their corporate acts. BEI could only give a picture of the condition of domestic or overseas stockmarket. Through 2013 IHSG in BEI still posted growth of around 9.54%. Perhaps there was worries of the companies who suspended. What BEI could do was to convince companies that the domestic stockmarket still had the change to grow positively. BEI believed that the zest for IPO at home was still high.
According to the Financial Service Authority [OJK] record, companies which were qualified for running IPO were PT Multipolar Technology Tbk and PT Victoria Investama Tbk. Also PT Bank Maspion Indonesia Tbk, PT Cipaganti Citra Graha Tbk and PT Bank Mestika Dharma Tbk And PT Bank Mitra Niaga Tbk. It was certainly regretful if companies postponed their IPO this year amidst the growing trend of companies doing expansion.
Movement of the stockmarket today was fluctuative in line with the growing external negative sentiments. However, it was advisable for investors to observe the condition of emitents in Indonesia which were in fact still notably good and allowed enough room for growth. This year the stockmarket was still fluctuative, but one thing was inevitable.
As known, PT Bank Muamalat Tbk had decided to postpone IPO considering the restless market condition and still showing downturn. However this corporate act would be continued as soon as the market was stabilized and investors were reassured.
The negative reaction to government’s indecisiveness about increasing fuel price, pressures on Rupiah due to foreign capital outflow and anxiety over soaring inflation, made investors reserved about investing in the stockmarket. However, investors had Indonesia economy was more focused on domestic demand. Household consumption constituted more than half of Indonesia’s GDP.
Not less notable was consumer’s confidence level which was predicted to be stable in the next few months. Government’s expenditure which was bigger toward 2014 election could contribute to growth process. So broadly speaking Indonesia must be more adaptive to continuing economic pressures as indicated by slowdown of growth in the first quarter and lessened domestic demand as well as oil price increase and social aid.
Furthermore the US Central Bank’s plan to end their bond buying by 2014 had triggered wide selling spree of assets of the emerging market, which forced BI to increased BI rate in adaptive effort to external winds of change.
Although monetary and fiscal policy had been quite responsive to circumstances, other pressures had mounted up which called for readiness for further adjustment to secure micro and macro stability and maintain the momentum of Indonesia’s economic growth. Price increase of subsidized oil a great reformation would help to minimize deficit of APBN 2013 State Budget with projected savings of Rp42 trillion this year.
While trying to meet demand for imported fuel amidst downturn of domestic oil production, the reformation in oil pricing was also an important step to increase funding for social aids to help the poor to survive. Poverty level would hopefully be lessened to 9.4% by March 2014.
The protect the poor families from high oil price was the government’s main priority and therefore a compensation package plan was designed to make than plan to be more overall, integrated and well targeted. That was the essence of Special Compensation plan including the People’s Temporary Direct Aid Plan [BLSM] fr 15.5 poor families in Indonesia for period of four months. BLSM should be designed to extend aid which was appropriate, timely and effective for the poor families who were injured by oil price increase.
Broadly speaking Indonesia’s economy would only slightly slowdown this year but run back to normal by 2014, in spite of slowdown risk in Europe. A continuous downturn of world’s commodity prices might darken Indonesia’s economic prospect due to their become in USD, profit of the businessworld and investment activities. A price of most of Indonesia’s main commodities had dropped and was now at 20% lower compared to the highest price level in 2011.]
Noteworthy was the statement of the Ministry of Finance M Chatib Basri that slow investment could not be driven by Government expenditure, as the portion of Government expenditure was extremely small. Minister Chatib said that Government expenditure could not be relied on to spur on economic growth as the Government’s portion was small. The Government’s share in contributing to national GDP was small, i.e. around 9%; so it could not be expected that growth propeller would come from the Government.
Today, the investment that could be expected to propeller economic growth was from the private sector 25% and domestic consumption 55%. For that matter the Government must scheme up a sound strategy to draw investment, whether local [PMDN] of foreign [PMA] among them through simplification of permi application procedures.
The most important thing was that the Government was determined to jack up economic growth still above 6%. The revision of growth projection by the World Bank should serve as motivation for the Government to proven that the World Bank could be wrong. (SS)

Business News - July 10,2013

No comments: