RUPIAH STILL UNDER PRESSURE AS POSITIVE SENTIMENT FADES

The Moneymarket

The still gloomy outlook of America’s econ­omy was reckoned to inject negative sentiment to currencies of the emerging economies of Asia. The interest of global investors were less inclined to prom­issory notes of higher risk in line with the US eco­nomic data which never seemed to improve.

Evidently during early session of the mon­eymarket last weekend (1/2) Rupiah exchange rate value weakened by 20 points to the level of Rp 9,700 against the previous position of Rp 9,680 per USD. During transaction on Thursday (3/1) Rupiah val­ue weakened by 55 points (0.57%) to the level of Rp 9,740 against the previous Rp 9,685.

Rupiah weakening was triggered by release of the US economic growth which was way below the estimated 1.1% to be contraction 0.1% through quarter IV 2012 against the previous 3.1 %. The con­dition triggered risk-aversion of high-yielding assets including Rupiah, followed by merry chase of save haven, i.e. USD.

Fortunately, in the USD GDP component, consumer’s spending was showing increase of 2.2%. Meaning, this level was stronger than expecta­tion and higher that that of quarter III-2012 at 1.6%. Therefore chances of recession in the USA in 2013 was thankfully low, because expenditure level of Americans was still positive. US GDP only made correction of temporarily due to high demand for USD as save haven.

Meanwhile USD was not too much affect­ed outcome of the Federal Open Market Committee (FOMC) showed that attitude was more dovish. The reason was, as a whole the Fed remained unchanged, The Fed still persisted to maintain low interest level and stimulus program writhe USD 85 billion each month so unemployment level reached 6.5%.

So sentiment of FOMC had been discounted at the market so the USD had short-term strength­ening. In case US economy was again having rebound soon, the market could again turn to high risk cur­rencies in Asia's emerging economy including Rupiah. All in al, USD inched up against majority of the main currencies including Euro. Index of USD inched up by 0.03% to 79.29 against the previous 79.26. Against Euro USD strengthened to USD 1.3557 against the previous USD 1.3566 per Euro.

Meanwhile the Fed signaled they would not ease the monthly bond expenditures program amount­ing to USD 85 billion to jack up the stagnated econ­omy. The Federal Open Market Committee (FOMC) last Wednesday (30/1) stated that economic growth was under threat in spite of bettered global financial condition.

After a two-day meeting, Chairman of the Fed Ben S. Bernanke and other Central Bank officials stated they would apply proper policy accommodation to jack up national economy and suppress unemployment level from 7.8% to 6.5%. All the statement mean they would keep buying bonds worth USD 85 billion per month before they were satisfied to see that the condition of labor market was as they expected.

Bernanke and his colleagues at FOMC had given boundless stimulus known as quantitative eas­ing of the third phase by buying treasury from the US Government or treasury worth USD 45 billion and bond with hypothec warranty worth USD 40 billion per month. However, a meeting minute of FMOC meet­ing in December 2012 showed they once had a de­bate over the discourse of stipulation of deadline of program although previously Bernanke had promised to execute until sustainable recovery was visible at the labor market.

At home, continuous weakening of Rupiah was the Government’s intensive attention. Finance Minister Agus Martowardojo insisted Bank Indonesia to immediately meet the Singapore Monetary Author­ity (MAS). The meeting could have been follow up of the mechanism of Rupiah value stipulation at over­seas market. This was related to the Non Delivery Forward (NDF) prevalent at the Singapore market which was reckoned to be the source of negative sentiment against Rupiah.

The NDF transaction was one of the mecha­nism at the overseas market which caused pressures on Rupiah. In fact Indonesia could ask Rupiah not to be traded abroad, just as other country who did not permit their currencies to be traded overseas.

Singapore banks could find evident based on internal meeting that there had been a plot to ma­nipulate Rupiah at the overseas market. Investigators found evident that there had been foreign currency traders communicating with one another by electron­ic messages about the exchange the proposed to banks for non-delivery exchange rate (NDF) or trans­action by Non Delivery Forward to take profit in their transactions.

The discovery widened scandal of global interest rate to the new market, the way it happened with the case of Libor to place banks under tight su­pervision and race among regulations and institutions to review assessment process of stipulating interest level and exchange rate of currencies.

Market players were also worried that inflation expectation in January would be higher than nor­mal months. Many analysts and economists predicted January inflation would be in the range of 0.9% - 1.2% because of the consumption up jump of 9 es­sential needs in many regions which caused produc­tion and distribution of goods to be disturbed.

By the above picture, this week Rupiah exchange rate value was predicted to be in the range of Rp 9,680 — Rp 9,730 with tendency to move flat.

The Capital Market

Unlike Rupiah performance which tend to weaken, performance of the stockmarket was bet­ter. During early transaction last week end (1/2) in­dex of IHSG and the Indonesia Stock Exchange (BEI) was opened on increase by 4,89 points or 0.11% to the position of 4,458.59. Previously during Thurs­day session (31/11) IHSG was closed to increase by 0,73% (+0.01%) to 4,453.70 with total transaction amounting to 12.75 million shares or equal to Rp 5,08 trillion. The same was with index of LQ45 pre­mium shares which strengthened the limited way by 0.12 points (0.02%) to the position of 761,256.

The sectoral shares which contributed to IHSG shares was basic industries (+48%), the consumer goods sector (+0.38%), the finance sector (+1.27%), and the mining sector (+0.36%). In fact the condition of stock market was less vigorous due to negative sentiment by US macro-economy data. Economic growth in the USA contracted by 0.1% in quarter IV-2012. The Fed stated they were not wor­ried about the contraction because data of house­hold expenditure business investment, and buying of bonds was showing constant betterment. Economic contraction made the Fed maintain their bond buying policy of Rp 85 billion per month.

Meanwhile domestic investors were seen to be waiting for January inflation which was an­nounced last weekend (1/2) by the Central Board of Statistics (BPS). Many analysts and economists pre­dicted inflation would soar up due to flood disaster in Jakarta capital city.

Above all, IHSG course during end of ses­sion last week (1/2) would still be moving mixed with tendency to move sideways. Index would move in the course of support resistance 4,430 - 4,470 while over the week IHSG was predicted to move in the range of support resistance 4,435 - 4,480 with ten­dency to strengthen the limited way as existents were safeguarded, especially in the financial sector.

In the other part of the world, the US stock­market was losing steam on Thursday (31/1) because investors negatively to data of company's profit and increased claim of unemployment. Transactions wa­vered aimlessly, where index of Dow Jones weak­ened by 44 points or 0.3% to 13,865, index of S&P inched down by 0.2% to 1,498.11 and index of Nas­daq inched down by 0.01% to 3,142.13.

Index of Dow Jones had benefited from the January effect to approach the level of 15,000 or increasing by 6% on that month, Index of S&P rose by 5% and index of Nasdaq rose by 4%. Although most company's income during the fourth quarter rose steeply, a Bearish condition on US economic data held back strengthening of index. Players of the stockmarket looked at economy as ground for invest­ment but which was still not strong enough for recov­ery.

Meanwhile the number of Americans applying for joblessness aid in the USA rose from 38,000 to 368,000 per January 2013. Over the past one month the average number of new claims inched up by 250 to 352,000. As footnote, America's economic growth in quarter four 2012 showed contraction of 0.1% against quarter three 2012 at 3.1%.

The downturn was because Government's expenditure dropped by 6.6% which was mainly due to reduction of budget for defense by 22.2%, the lowest in the past 40 years but people's consumption was still on the upturn. America’s economy in 2012 grew by 2.2%.

At the domestic stockmarket news breezed out that investor's interest to invest in Bakrie Group continued to decline. A condition as such reduced transaction's liquidity which had its impact of Bakries's shares being wiped out of LQ 45 index. According to analysts, performance of Bakrie Group emitents tend to be problematic in the past 2 years which made investors abandon their shares.

The announcement of list of LQ 45 shares for LQ 45 for the period of February -July 2013 made by BEI disclosed that there was only one company of this group which was listed, i.e. PT Bumi Resources Tbk (BUMI). Yet in 2010 there were 7 shares of Bakrie Group enlisted in LQ 45. However, from the bank­ing sector good news breezed out. It was PT Bank Rakyat Indonesia Tbk (BBRI) which was able to book net profit of 22.79% to become Rp 18.5 trillion by end of 2012.

Increase of the net profit was made possible by business transformation by focusing on the Micro-­Small-Medium Business (UMKM). The company also upheld prudent banking, expand operational network and e-channel, and develop e-banking including tech­nology-based information, the transformation had im­pact on credit growth posted at 22.80% (y o y).

Unfortunately there was still not-so-good news for investors at the capital market. The Govern­ment prohibited a number of state owned companies (BUMN) to sell their shares at the Indonesia Security Exchange or going public this year. Indeed this was an unpleasant news, not just for investors who were in need of new investments, but also for the BUMN management who had long in advance planned to go public to finance their business strategy.

So with the prohibition the plan for Initial Pub­lic Offering in the past few years by some BUMN and their subsidiary companies might have to face failure. Just take for example PT Pegadaian, PT Pos Indo­nesia, PT Semen Baturaja, PT Pertamina Geothermal Energy (a Pertamina subsidiary company) and PT Garuda Maintenance Facility (GMF) and some other companies.

Unfortunately the Government's reason­ing for forbidding BUMN to go public was unclear. The reason that surfaced was that BUMN needed to strengthen their internal performance. Some of the Government's reasoning were rated as irrelevant. For example there was a statement by a certain Min­ister about prohibition for BUMN to go public was because the company was in direct contact with the grass root.

This was certainly a strange logic unacceptable by community of the capital market, considering that many BUMN were in direct contact with the low­er people and in that case to go public should be more prospective while operations could be more transparent and accountable. Just mention PT Bank Rakyat Indonesia Tbk which commanded over customers of the lower strata. Now that bank's performance was even much better after they have sold their shares to the public through IPO.

Business News - February 06,2013