Perhaps market players were upset about government’s uncertainty and procrastination about increasing price of subsidized oil. For over a year polemics had been going on and on, discourses thrown hundreds of times, but until today there was no sign of clarity when oil price increase would be executed.
Market’s common sense is a natural process which believed that indecision triggered worries which materialized itself in declining trust. It came as no surprise that in the first five months of this year Rupiah value was constantly under pressure way be low its own fundamental value.
Thankfully the stock market was not affected, as indicated by the fact that the IHSG index at the Indonesia Security Exchange [BEI] still settled at above 5,000 it seemed that negative sentiment tend to aim itself on Rupiah rather than the stock market. However in not too distant future the government was expected to be decisive about energy subsidy so the logic of economy cut materializes itself well.
The Money market
On the opening session of the spot market in Jakarta last week [31/5] Rupiah value was predicted to weaken. While waiting for the government’s announcement of oil price increase, the market was also waiting for the release of China’s manufacturing data. Last Saturday [1/6] China released the government’s version of manufacturing data which [by estimate] dropped to 50.1 against the previous 50.6 therefore Rupiah showed tendency to weaken last week end in the range of Rp9,800 p Rp9,840 per USD.
Furthermore if the data skipped down to be low expectation, it might trigger risk aversion from risky assets like Rupiah to save haven like the USD. China’s Government’s version of released manufacturing data might confirm downfall of manufacturing which was previously released by HSBC which showed contraction.
Besides, Rupiah consolidation effort was also related to market awaiting position of Indonesia’s macro-economy data to be released on Monday [3/6] like trade balance, import-export, and inflation. With the discourse o oil pricing policy the inflation data to be reported by the Central Biard of statistics [BPS] would no longer be relevant.
Last week data of US GDP was released to estimate early quarter l-2013. The growth percentage was predicted to increase to 2.7% to 2.8% against the previous estimate o 2.5% this would certainly have its positive impact on the USD and vice versa and pose as negative pressure on Rupiah.
At that time data of US economy was still showing recovery so Rupiah could be affected. In reality, US GDP was released to be slightly lower than estimate to become 2.4% for quarter l-2013. Apparently Rupiah was more influenced by China’s manufacturing data.
As footnote, Rupiah value against USD at the interbank sport market Jakarta last Thursday [30/5] was closed to stagnate at Rp9,810 per USD. Negative sentiment over US government’s plan to stop Quantitative Easing [QE] by year end had its negative impact in the capital market in Indonesia, and rupiah was no exception.
If the US government’s stopped the QE policy by year end, it would have its impact on the capital market. Although capital inflow was effected, Indonesia’s fiscal was still healthy as impact of the subsidized oil policy. By controlling subsidized oil, deficit of trade balance caused by high oil import could be minimized. On the contrary if there was bettered policy of oil subsidy, pressures from oil importing could be lessened so trade balance could be eased.
So even if the USA stopped their QE program, Rupiah value would be as assumed by the government in their proposal to Commission XI of House, i.e. Rp9,600 per USD, on condition that price of subsidized oil was increased. On the other hand, the global economic condition which was still on the slow track, had made safe haven currencies like USD to be the player’s target so the value strengthened. It was a pity that positive sentiments form home, like Indonesia’s economy which still scored growth, was edged aside by negative sentiment from the external which suppressed Rupiah.
However, the Government’s plan to increase price of subsidized oil would predictably pose as positive sentiment to the domestic exchange rate value in the future. This step could lessen deficit of Indonesia’s balance of payment which would bring positive impact on Rupiah. Besides, BI was still striving to protect Rupiah value in accordance with Indonesia’s fundamental economy.
By prediction the market would also be oriented to the impact of oil price increase, in this case inflation potential. BI’s Governor Agus MartoWardojo stated that inflation caused by oil price increase might break through 7.76% this year. BI’s projection was higher than the inflation target by the government in APBN-P State Budget 2013 at 7.2%.
By BI’s calculation, inflation would reach 7.76% due to increased oil price, but still saved by controlled food price. In detail, BI elaborated that inflation in the future after oil price increase would be high. Consumer’s Price Index [IHK] would rise from 4.5% to 5.8%. Inflation contributed by oil price increase would be 2.66% so annual inflation would reach 7.76%.
BI’s inflation figure was inclusive of increase of transportation cost. It was almost certain that public transportation would increase tariff in line with oil price increase. Tariff of overland transportation would increase by 20%. Taxi fare would increase as well, moreover if price of LPG gas increased it would boost inflation. However the inflation turbulence would only last for 2 to 3 months. By early 2014 inflation rate would be back to normal as before oil price increase.
BI’s Governor Agus Martowardojo also predicted Indonesia’s Balance of Payment [NPI] would improve in quarter 2/2013. The improvement was thanks to betterment of export in the line with gradual recovery of global economy. Import pressures would be eased in line with moderate domestic demand. There would also be increase of capital inflow, especially in the form of capital investment.
Previously BI announced Indonesia’s Balance of Payment deficit of USD 6.6 billion [Rp6402] through quarter one 2013. This was because the capital and financial transaction which was previously expected to cover up deficit of current transaction turned out to be deficit. The development signaled that Indonesia’s total forex reserve by end of March 2013 would slump to USD 104.8 billion [Rp1,60 trillion]. The total amount of forex reserves was equal to import cost and overseas debt payment of 5.7 months above international adequacy ratio.
By BI’s data, by end of April 2013 Indonesia’s forex reserves was noted to increase to USD 107.2 billion [Rp1,039,8 trillion] By early quarter ll of 2013, capital fow to Indonesia increased reasonably. This was driven by release of global bonds. This was what made BI certain that Rupiah would be in the range of Rp9,500 – Rp9,700 per USD all year through.
Based on data of the Central Board of Statistics [BPS] total export of quarter l 2013 was USD 45.39 billion or down by 6.44% compared to same period of 2012 at USD 48.51 billion. Meanwhile import of quarter l 2013 was posted at USD 45.46, also a slump of 0.62% against same period of 2012 at USD 45.75 billion. The condition forced the government of RI to lower economic target growth to 6.2% in 2013, down against the previous target of 6.8%.
By the above picture, Rupiah exchange rate value was projected to move in the range of Rp9,780 – Rp9,830 with tendency to weaken.
IHSG during last session last weekend [31/5] was opened to strengthen. This appreciation occurred after weakening the day before. During pre-opening session last Friday [31/5] IHSG strengthened by 5.6 points [0.11%] to the level of 5,135.247. The same was with LQ 45 premium shares which rose by 1.41 points [0.16%] to the level of 859.168.
During early session, IHSG was opened to ascend by 14.07 points [0.27%] to the level of 5,143.72 and index of LQ rose by 1.92 points [0.22%] to the level of 859,168. Predictably IHSG would rebound after weakening notably by 1.4%. Index during closing session of last weekend [31/5] was predicted to be in the range of 5,155 with potential to strengthen.
Meanwhile the US stock market was closed to strengthen by 0.4% on the average, although GDP data and jobless claims was worse than estimated and worse than the previous period. The gloomy data was expected the motivate the fed to continue their stimulus injection program. The stock market in Europe was also closed to strengthen by 0.4% driven by bettered consumer’s confidence in England and statement of the British Chamber of Commerce that England’s economy would grow faster than estimated.
In Asia’s stock market, after significant correction early last weekend was opened to strengthen, driven by expectation of pension plan in Japan which would increase shares placements, also expectation of industrial output which grew better than estimate.
Previously during transaction last weekend [30/5] IHSG was closed to weaken by 71.05 points [1.37%] to the level of 5,129,647 foreign investors were booking net sell in significant amount up to Rp1.43 trillion. Trade volume and total transaction dropped, while domestic investors were booking net buy.
As Asian stock market diversified, moreover with steep downturn of Hang Seng Index which was intercepted by weakening of US and European stock market previously, held back IHSG’s upturn. Not less notable was sentiment from Rupiah weakening which made market players lose zest to make transactions. So foreign investors turned aggressive in releasing shares which made IHSG sink deeper.
As for this week, although there were technically signals of further correction, there was always possible index sudden backflow which meant global shares could bloom once more. For that matter investment were advised to watch on the course of global shares. This week IHSG with the potential to strengthen.
The only thing was that the chances for IHSG to strengthen could be hindrance unless the government’s give clear signal about oil price increase this first week of June. If market players were annoyed or upset, they could release shares the massive way which would forces IHSG to nose-dive to bottom line.
Among the recommendable shares were shares of PT Ciputra Raya [CTRS], PT Cement Indonesia [SMGR], PT Japfa Comfeed Indonesia [JPFA], PT Ramayana Lestari Sentosa [RLS], PT Surya Semesta Internusa [SSIA], PT Bumi Serpong Damai [BSDE], PT Bumi Resource Materials [BRMS], PT Pembangunan Perumahan [PTPP], PT Citra Marga Nusaphala [CMNP], PT Multipolar Corporation [MLPL] and PT Global Land Development [KPIG]. (SS)
Business News - June 05,2013