Bank Indonesia’s breakthrough last week [11/7] which aggressively raised BI Rate by 50 basic points from 6% to 6.5% was believed to bring impact on the development of moneymarket this week.
This increase of BI rate was in line with the economic condition which had not shown any betterment and inflation peak due to increased price of subsidized oil early July. Not just that, BI also increased Fasbi rate by 50 basic points to the level of 4.75% while lending rate remained to be 6.75%.
Increase of interest was made by BI to bring inflation course of 2013 back on the right track. BI would thoroughly monitor and strengthen mitigation steps of oil price impact on inflation. It was expected that in the inflation could be tamed to be in line with in inflation target 2014.
So far global economic growth was still slow and full uncertainly, especially in Europe and the USA. Meanwhile China and India were still below target in terms of economic projection, in spite of notable economic growth. Even the speculation that the Fed would stop the quantitative easing [QE] policy had influenced global finance. Such had caused capital backflow in the emerging markets including Indonesia which in June was characterized by release of the SBN Promissory Notes and shares worth USD 4.1 billion.
In the post BI –rate and Fasbi Rate era which increased simultaneously last Thursday [11/7], Rupiah was moving two-ways somehow in time to come changes for Rupiah to strengthen increased following the Fed’s statement that monetary stimulus would be prolonged which made USD value to slump.
Last week [12/7] Rupiah was predicted to strengthen to the range of Rp9,940 – Rp9,975 per USD although there was released claim that positive data of US unemployment might hold back Rupiah increase. Increased BI rate and Fasbi rate would attract capital owners to change their foreign currency to Rupiah as the return was more profitable.
The Fed’s Governor Ben Bernanke made a statement on Wednesday [10/7] that quantitative easing plan of the Fed was still needed to inject positive sentiment for Rupiah. According to Bernanke, employment data of the US was still negative and inflation was too low. Making his statement in Cambridge, Masachussettes, Bernanke also reminded that the impact of Government’s axing of budget on March 2013 last, was not visible yet. Therefore he underscored that greater support from the Fed was still needed. Secondly on the task side and inflation side the Fed needed to be more accommodative to conditions.
Bernanke remarked that the unemployment level of 7.6%, although still below the peak of crisis, but the low participation level as a whole in the labor market, four years after America survived from recession and high consideration was continuing the stimulus package.
Bernanke’s remark breezed out hope to the market, after the market’s reaction to the release of the summary the Fed’s policy meeting three weeks ago [May 22, 2013]. At that time Bernanke stated that the Fed planned to begin reducing stimulus for buying bonds worth USD 85 billion. After that released price of America’s bonds dropped but the return soared up.
The report showed that half of the Board’s member wished to stop quantitative easing by buying bonds this year. Meanwhile Bernanke stated that termination of stimulus as a whole would only be executed mid 2014 at the soonest. Bernanke’s statement forced the stockmarket to rebound, especially with the underscore that the initial plan which he set forth about stimulus reduction was the one that’s effective.
One thing was sure, Rupiah safeguarding would be more effective as BI was always affront in protecting Rupiah. The policy to increase BI rate and Fasbi by 50 bps respectively was one of the indicators. This would still be strengthened by other policy mix which would increase market credibility of Indonesia’s economy. The effect was that Rupiah would gradually solidify.
Previously the Government’s step to increase price of subsidized oil was initial step to enhance market’s trust as the policy would improve Indonesia’s balance of payment in the future. BI was also determined to maintain Rupiah exchange rate value which represented the nation’s fundamental economy. Naturally, the policy to increase price of subsidized oil would in the future lessen deficit of the State’s Budget and bring positive impact on national trade balance, and all the factors would help Rupiah to regain strength.
BI also claimed that depreciation of Rupiah value in the first six month of 2013 was still understandable because depreciation of other currencies in the region were steel deeper than Indonesia’s Rupiah. Rupiah exchange rate value from January to June 2013 was only depreciated by 3.01%. For example, Singapore dollar was depreciated by 3.8%, Malaysia’s Ringgit by 3.3%, the Philippines Peso 5.425%, Korea’s Won by 7% and Japanese Yen by 14%. The main concern of market players was BI’s commitment to safeguard Rupiah’s volatility.
It was noteworthy that Asia’s stock market was worried that the Fed’s step would most probably reduce monetary stimulus. On the contrary the Asian Development Bank [ADB] stated that capital was flowing in to Asia. Although today many countries were subjects to capital flight, it was only for the short term. ADB believed that foreign capital would still flow in to Asia, including Indonesia, to energize Asia as Asian countries had sound fundamental economy.
Asean was believed to be the most stable region in the world, in view of economic growth in the past few years. Indonesia was acknowledged as a country of highest growth percentage in Asean next to the Philippines. Indonesia’s economic growth had been well settled at above 6% in the past two or three years, in spite of being highly dependent on capital flow.
ADB noted that this year Indonesia was the first country in Asia who interested bank interest rate by 25 basic points to become 6% since 2011. This step was necessary to anticipate soaring inflation by the time Rupiah weakened. In Asia, especially the developing countries, the shares market and bond market were showing downturn in May. The cause was growing speculations about the possibility of the Fed reducing sized of stimulus by Rp85 billion per month; and yet this policy had pulled in foreign capital to this region.
However after selling spree at the stockmarket and bond market in the past few weeks, investor had re-entered the market. Many research agencies dared to recommend investors to enter the stockmarket at MSCI Emerging Markets Index. Because the valuation was already cheap with price to earnings ratio below 10. This would drive stockmarket activities and uplift the local currency. From the above picture, this week Rupiah value would be in the range of Rp9,935 and Rp9,975 per USD with tendency to strengthen.
The Capital Market
Index of IHSG by last weakened [12/7] moved in the green territory, being triggered by index of Dow Jones and S&P 500 which scored highest record. This morning IHSG was opened to strengthen by 15.4 points or 0.33% to the level of 4,619.36. Increase of IHSG was followed by index of LQ shares 0.91% to the level of 778.51, followed by shares of JII 0.24% to the level of 634.6. Index of ISSI shares strengthened by 0.34% to the level of 156.58. This strengthening continued strengthening which happened on Thursday [11/7] where IHSG was closed to rise by 125 points or 2.80% to the level of 4,604.22.
The stockmarket in Asia was also opened to be varied. Index of Shanghai slumped by 5.56 points or 0.21% to 21,392.83. Index of Nikkei 225 rose by 72.36 points or 0.50% to 14,544.94 while index of Straits Times dropped by 8.042 or 0.29% to 3,239.67.
During closing session last weekend [12/7] IHSG was predicted to close strong in the range of 4,610 – 4,630 being supported by shares of the consumer sector, telecommunication, and construction. Increase was triggered by acts of foreign investors who were doing net buying worth Rp96.66 in previous transaction.
It was noteworthy that the US stockmarket strengthened during shares transaction on Friday [12/7] after policy makers in America and Japan stated they planned to maintain monetary stimulus. Index of MSCI Asia Pacific strengthened by 0.2%. This index of benchmark share was doing rally since July 5. Besides, index of Australian shares strengthened by 0.7%. Index of Kospi South Korea weakened by 0.5% while index of Topix strengthened by 0.5%.
The quantitative easing in the US and Japan generated positive sentiment to the regional stockmarket. Foreign investors who previously release shares were now chasing shares which were rated as cheap. This acts of buying led all sectoral index to strengthen at the green zone. Moreover last week [8/7] three emitents listed their initial shares at the Indonesia Security Exchange [BEI]. The three emitents were: PT Victoria Investama Tbk [VICO], PT Multipolar Technology Tbk [MLP] and PT Mestika Dharma Tbk [BBMD]. The three emitents would do listing consecutively as 19th, 20th and 21st company listing their names for IPO this year.
Word was out that Victoria Investama released 1.15 billion shares with price offered at Rp125 per share. Multipolar Technology planned to release 375 million shares to the public with offered price around Rp425 – Rp500 per share. Meanwhile Bank Mestika Dharma planned to release 818.01 million shares with price around Rp1,370 – Rp1,570.-
Although the stock market had been restless since May, companies’ zest in running IPO in Semester II-2013 remained high. BEI stated that PT Grand Kartech had published their intention to run IPO.
Today PT Grand Kartech was in procession of assets worth Rp1 trillion and planed to release 10% of it based on book keeping of April 2013. This emitent candidate was a producer of various industrial machines like agriculture, oil-gas, mining, and electricity especially boiler machines.
Previously there was already another company who planned to release their shares to the public this second semester, one of them was PT Sido muncul which had launched their minor Press Release campaign [1/7]. This jamu herbal producer aimed at maximum fund of Rp1.5 trillion to double their production capacity.
The timing to run IPO in quarter IV was rated as right, because according to the market cycle the market was prospective in quarter I and IV so the fund from IPO was expected to be maximized. BEI had worked hard so in Semester I-2013 more than 20 new emitents were listed. This indicated that the authority of the stock market was trying to meet high IPO target; it also indicated that the players of industry were beginning to be stockmarket literate.
In addition to the above, the emerging middle class in Indonesia today contributed to the process of stockmarket development. The point was that the middle class would tend to seek an instrument of investment and among the thinkable was the stockmarket. With fund at the stockmarket originating from the middle class, companies would find a way to capitalize their business through IPO.
Cancellation of stimulus reeducation by the Fed was now not longer something to worry about, as the potential of foreign capital entering the market was now wide open. On the other hand, even if the US economy bettered, it would benefit exporting countries to the USA, including Indonesia, which would uplift their economy and improved emitent’s performance.
About increased BI rate, it was already anticipated by market players and encouraged them to make transaction. The remarked that deficit of the state budget and eroded forex reserve had forced BI to compensate the market by increasing BI rate of 50 bps. Increase of BI rate was not meant to stagnate economic growth but to comfort the market and prevent speculation in Rupiah exchange rate which declined constantly if BI rate remained to be above 6%. Increase of BI rate was expected to drum up foreign investors to return to Indonesia and positively support IHSG.
Being supported by strengthened shares in the infra-structure sector, building construction, basic industry particularly the sub-sectors of cement, banking, finance, and shares resistant to increased interest, this week BEI index would move in the range of 4,620-4,660 with tendency to strengthen. This was because generally stock players perceived positively BI steps to increase BI to control inflation or to strengthen Rupiah. (SS)
Business News - July 17,2013