RUPIAH CONSOLIDATES AS IHSG BUSILY INDULGE IN WINDOW DRESSING

The Moneymarket

Over the week Rupiah exchange rate value against USD would consolidate and tend to inch up. As known, last week, triggered by strengthening of Euro in inter-bank transaction on Thursday (13/12) inched up by 5 points to become Rp 9,625 against the previous position of Rp9,630 per USD.

The USD value stumped against risky curren­cy as the Federal Reserve Bank announced the plan so increase the monetary stimulus program. in that stimulus program, the Fed maintained interest rate in the range of 0 - 0.25% for the next four years (up to 2015).

Ben S, Bernanke, Governor of the Fed was getting more aggressive in strengthening the stimulus program. The Fed linked outlook of credit interest rate with unemployment and inflation. Bernanke said that bank interest would remain as long as unemployment was above 6.5% and inflation rate was not more than 2.5%.

The Fed’s decision underscored Sernanke’s commitment to an aggressive policy experiments. He learned a lesson from America's experience in the Great Depression of 1930’s and Japan in 1990 when monetary stumulus was too powerless causing vast economic loss. Bernanke rated the condition of labor market with unemployment level of 7.7% means to waste human resource potentials and economy po­tential.

Besides, the Fed also had their commitment to buy Treasury up to USD 45 billion per month as time of Operation Twist ended. The extra spending would certainly storm the moneymarket and many USD were in circulation which had the risk of reduc­ing USD appeal because it was rated as oversupply. Meanwhile in Bank Indonesia’s mid-rate Rupiah moved to strengthen to become Rp 9,643 against the previous position of Rp 9,645 per USD.

Only thing was the Rupiah exchange rate against USD posted in Semester 2 this year must be the main attention of the Government and BI. The Government and BI must not sit on their laurels to see Rupiah sink. In fact the focus of attention of BI was Indonesia’s Balance of Payment (NPI) which was still in delcit; such happened due to import being higher than export.

Supply of USD was mostly drained by im­port of capital goods although it remained a ques­tion whether capital good like computers and gadgets could be categorized as capital goods; in this case misinterpretation was apparent.

So far, trade balance was still in a state of deficit because import outnumbered export. Through the period of January - October 2012, trade balance showed deficit of USD 500 million or 102% lower than same period of 2011, when surplus of USD 23.97 billion. For that matter, Trade Balance called for attention of all parties. Minus in trade balance would have negative impact on Rupiah, benchmark rate and inflation.

Nevertheless many analysts and economists were optimistic about strengthening of Rupiah. Some of the contributing factors to Rupiah strengthening was high capital inflow for direct investment.

Besides, there was growing response to BI's policy in regard to Export-based Forex Reserves (DHE) and provider of Trustee for Forex banks. Until quarter I/2013 Rupiah would remain to "weaken” to support trade balance. Undeniably through last week negative sentiment was overshadowing Rupiah. As there was no notable occurrence over trading sessions in Asia, currency value including Rupiah tend to fluctuate within narrow range.

Investors were now focusing attention on the agenda for the Federal Open Market Committee. This was the factor that put Rupiah in a shaky position last week. However, Rupiah still stood a chance to strengthen in line with report on increasing confidence of German investors plus Spain’s successful attain­ment to surpass sales target of bond auction. A con­dition as such strengthened Euro exchange rate value and that means positive impact on Rupiah because of the market’s psychological effect that perceptions of Asian currency was changing for the better.

One thing was sure Rupiah had been in the lowest level over the year, and even in the past three years. To remember that once Rupiah touched the level of Rp 8,000 per USD, the present level of above Rp 9,000 was truly disheartening. In view of the fact the Government was asked to regard Rupiah position as being safe because the truth was that Rupiah value was now disappointingly low. If the Government tend to believe that Rupiah position was still safe, such was not naked truth because reality was too striking to be denied. In reality there were too many factors which constantly eroded Rupiah.

The Government was expected to be cautious because Rupiah low performance had been going on all year thrqugh. Since early 2012, Rupiah movement had been constantly downward. Supposedly this long lasting condition be benefited for finding the cause of slump as well as to find solution for Rupiah weaken­ing.

Scarcitry of USD in the market when demand was high made it hard for Rupiah to move up. The condition occurred because the market seemed to be losing confidence in Rupiah and losing the belief that Rupiah had the chance to strengthen against USD.

And yet the capital market was basically in good condition where IHSG stockmarket and BEI Security Exchange were signaling strength. Normal­ly there used to be synchrony between Rupiah and IHSG, but the way things were happening now was anomalous. Today, when IHSG was strong, Rupiah collapsed, it seemed ther was no influence of the cap­ital market on the moneymarket.

By theory, when index of the capital market moved up, investors stormed in to make buyings and it means that the Dollar cash they held in hand must be converted in Rupiah with which to buy shares at the stockmarket. Supposedly the condition increased stock of dollars in the moneymarket. Yet in reality_, the USD in circulation was instantly absorbed by the market so there was no guarantee of sufficient stock of USD yet in reality the stock of USD were instantly absorbed by the market. The outcome was that USD continued to strengthen against Rupiah.

It was interesting to note that BI suspected there were certain circles who deliberately used the rumors on growing deficit in current transaction as means to weaken Rupiah. They blew up rumors that deficit in currant transaction was swelling up; those were attempt to spread negative rumors. But BI un­derscored that increased deficit in current transaction account needed not to start worries about national economy.

During year end. BI believed that deficit would remain at around 2.2% of GDP hence it was not too worrying on the monetary side. Foreign in­vestments would remain to prevail and excel over deficit. Foreign investment was not a short term capital inflow.

BPS data showed that Trade Balance in October 2012 reached the highest record of USD 1,54 billion. Export in October came to USD 15.67 billion. Meanwhile import posted higher figure, i.e. USD 17.21 billion. On the other hand, investment re­mained strong thanks to conducive business climate and optimism about Indonesia's sound fundamental economy and bright prospect. For that matter BI re­mained to maintain benchmark rate at 5.75% since February 2012 until the last month of this year.

Not less interesting was in spite of deficit, the position of forex reserves in October 2012 slightly increased from USD 110.279 million to become USD 111.285 million last November. This was a positive signal to the market although the impact was minimum. For that matter it seemed natural If Rupiah value moved in the range of Rp 9,600 – Rp 9,650 per USD with tendency to move flat.

The Capital Market

Unlike Rupiah which inched up last week, IHSG stockmarket fell by 17 points following acts of profit taking by investors from Blue Chip shares. Consumer shares were the target of profit taking. To initiate transactions on last Friday morning (14/12), IHSG was opened to drop by 5.850 points (0.13%) to the level of 4,331.678 being pressed by continuing sates. The position of index which rose high was used by investors for profit taking.

Index of the consumer sector was again un­der sales pressure, especially blue chip shares. Index of the mining sector tried to hold index in the green zone but tailed. The mounting sales pressures made index to nose dive to the bottornline. This happened during trading session on Thursday (13/12) where IHSG was dosed to fall by 17.339 points (0.40%) to the level of 4,320.269. Meanwhile index of LQ45 was closed to drop by 3.984 points (0.54%) to the level of 738.704.

Again it was shares of the consumers sec­tor which were the subject of profit taking. Index of the consumers sector dropped by nearly 4%. Shares of the mining sector were still trying to draw index back to the Green zone. However, although index of the mining sector rose by more than 2%, it still failed to bring positive impact. Evidently foreign investors were making foreign net buy worth Rp 648,62 billion.

Meanwhile movement of shares in Asia were highy varied, where shares of China sank deeply while shares in Japan rose high.The movement was influenced by the situation in Europe where economy was not conclusive to progress. Index of Composite Shanghai fell by 211.25 points (1.02 %) to the level of 2,061.48. Index of Hang Sang weakened by 57.77 point (0.26%) to the level of 22.445.58. Index of Nikkei 225 soared up by 161.27 points (1.68%) to the level of 9,742.73. Index of Straits Times rose by 14.80 points (0.47%) to the level of 3,156.37. At the Tokyo stockmarket, weakening Yen served as positive catalyst to most of the shares.

Unfortunately, movement of the index of regional stockmarket was blocked by the threat of deadlock of the meeting on Fiscal Cliff which still posed as negative sentiment. The US stockmarket wasa again corrected by the meeting deadlock be­tween President Barrack Obame with House speaker John Boehner.

The latest development was that John Boeh­ner rated the proposal set forth by Barrack Obama was not serious about reducing expenditures. As planned the two blocks would meet again in Washington.

The result was that index of DIJA was cor­rected by 0.56% to the level of 13,170 while index of S&P 500 eroded by 0.63% and index of Nasdaq was cut by 0.72% to the level of 2.992. Economic data showed that Producer Price Index in Novermber to the level of 1.5% (yoy) against 1.8% (yoy) while intial Jobless Claims dropped to the level of 343 thou­sand against the previous 396 thousand.

The further development was that stockmar­ket in America weakened on Friday morning (14/12) being overshadowed by fear of the fiscal cliff negotiation by the Government which progressed only slightly. Index of Dow Jones weakened by 74.73 points or 0.56% to the level of 13,170.72. Index of S&P weakened by 9.03 points or 0,63% to the level of 1,419.45. Index of Nasdaq weakened by 21.65 points or 0.72% to the level of 2,992.16.

Worries over the long and winding negotiation between the Democrat and the Republic Group was enough to balance heartening data on retail sales and jobless claim. Previously there was fear of increased taxes and slashing of expenditures due by 2013 if agreemebnt was not arrived at in Washibngton. The uncertainty was a disadvantage to economic growth. Grim remarks of John Boehner triggered act of selling at the stockmarket. Boehner accused President Bar­rack Obama as being late in handling the Fiscal Cliff problem.

At the BEI stockmarket analysts estimated movement of stock index last week (14/12) tend to be fluctuative in the course of weakening at around 4,320 - 4,345. Index made it possible for continued weakening if they failed to settle at above 4,320.

Performance of shares of the trading and mortgage sectors, consumner goods, and infrastructure was notably significant. Shares performance of the four sectors might serve as main propeller of BEI index movement this week.

Meanwhile increase of shares price of the property sector were triggered by significant perfor­mance of emitents of this sector, supported by high public demand for housing. Soon in 2013 shares of the property sector, consumer goods and infra struc­ture was predicted to be still the main sustainer of index performance.

Pehaps players of the stockmarket would tend to observe acts of window dressing of all emitents toward year end, so there was some motivation to accumulate shares, especially blue chips shares. Hence this week IHSG BEI stood a chance to move in the range of 4,325 - 4,345 with tendency to thinly strengthen. (SS)

Business News - December 19, 2012