Sunday, 22 September 2013


The Money market
Rupiah value under heavy pressure. Data of the Jakarta Interbank Spot Rate [JISDOR] last Thursday [15/8] sowed Rupiah at the position of Rp 10.318 per USD. This was the lowest level since 2010. Meanwhile at the inter-spot market Rupiah easy even worse at Rp 10,413 per USD. At the Non Delivery Forward [NDF] Market in Singapore, Rupiah fell to the level of Rp 10,500 per USD.
To look back at 2012 last, Rupiah was at the level of Rp 9,670 per USD, meaning it had been depreciated by 6.7% through 2013. Pressures on Rupiah was on account of the reaction of the money-market who saw that Indonesia’s for ex reserves was constantly contracting.
Data of BI had it that the position of Indonesia’s for ex reserves was only Rp 92.67 billion, shrinking by USD 5.5 billion against June 2013 which was USD 98.1 billion. The shrinking for ex reserves was way beyond many parties’ expectation, considering that the Government on early July last had issued global bonds worth USD 1 billion. BI had also run fo rex auction to absorb for ex in the market. The result was that BI had managed to pocket USD 3.1 billion.
Still it failed to jack up for ex reserves, and yet for ex reserves was supposed to be BI’s amunition to stop Rupiah weakening. The shrinking for ex reserves made the market turn panic, and made banks to be reluctant to release for ex to the market. Other factors that worsened Rupiah value was BI’s decision not to change BI rate. Meeting of the Board of Governors of BI last Thursday dicided to set BI rate at 6.50%.
On the external side, signals of America’s economic betterment contributed to strengthening process of USD, but the Fed remained to be indecisive about stopping QE. The result pressures on Rupiah would predictably continue till September.
Only when the Fed had made sound decision, foreign investors would re-enter Indonesia. By that time Indonesia’s economic data was predicted to be better because import burden from oil would be minimized due to the recent increased oil price. BI claimed they were not worried by Rupiah pressures this time. The reason was Rupiah fundamental state was constantly following economic state, so it was concluded that Rupiah would be depreciated in accordance with the course of fundamental economy.

BI would certainly remain responsible of the present condition, they would constantly run monetary operations like swap auction, so liquidity of USD at home would be assured. Besides, BI planned tackle economic slowdown.

Firstly, to issue Bank Indonesia Fixed Deposit Certificate [SDBI] with the objective to control liquidity of the money market. This instrument was very much like the Bank Indonesia Certificate [SBI] but specially designed for local investors.

Secondly, to lower ceiling ratio of Loan to Deposit Ratio [LDR] against Minimum Mandatory Giro [GWM] from 100% to 92%.

Thirdly, to revise secondary GWM from 2.5% to 4%

BI’s action was expected to cool down market’s panis. Understandable because Rupiah’s weakening was on account of mounting speculation over stimulus program in the USA and swelling deficit in Indonesia’s trade balance. Moreover there was potential trade deficit of USA 9 billion in quarter II. In the previous quarters Indonesia posted deficit of trade balance of USD 5.3 billion.

Rupiah exchange rate value through July 2013 last was depreciated in line with the course of fundamental economy. On the average, by point to point Rupiah was depreciated by 3,43% and closed at the level of Rp10,278 per USD.

BI rated that the trend of Rupiah depreciation was still in parallel with the fundamental economic condition and could support efforts to speed up betterment of external condition and support economic growth toward healthier state. In addition to the above externally pressures on national economic was still continuing. As a whole, Indonesia’s balance of payment [NPI] in quarter II-2013 was having less deficit compared to previous quarter.

Betterment of Balance of Payment was supported by significant surplus in capital and financial transaction [TMF], among others due to Foreign Direct Investment and issuance of Government’s forex bonds. On the other hand, deficit in current transaction was increasing notably, on account of declining export performance due to global economic slowdown and falling prices of global commodities, amidst high import whether oil-gas according to seasonal pattern.

Deficit in current transaction was also influenced by payment of debt interest which was quite sizable in quarter II-2013. In the future, with the application of policy mix of monetary and macro-prudential policy exercised by BI and fostering coordination with the Government, balance of payment was expected to improve by reduced deficit and current transaction in line with lessened domestic demand and adjustments in Rupiah exchange rate value.

BI’s greatest anxiety was that the Fed would continue the plan of reducing stimulus. Indecisiveness of the Fed to increase stimulus made USD flow out of the emerging markets including Rupiah. Meanwhile yields of state bonds which was due on May 2023 rose by 2 basic points to 7.75%, the highest level since July 31 based on data of the Inter Dealer Market Association.

BI’s effort to stabilized Rupiah value was supported by the Financial Service Authority [OJK] who planned to release new regulation on Reksadana Insurance containing 100 percent portofolio of foreign capital which used to be the trigger of fluctuation in the money market could be under control.

OJK had also been constantly consulting the Director General of Tax to postpone increase of income tax on Reksadana to 15%  against the present 5%. However the change of regulation would take a long process because amendment must be made on Government’s regulation no 16/2009 about Income Tax on in the from of bonds. OJK proposed to the Government that increase of Pph be delayed until 2020.

For information, the share-based Reksadana was a promising instrument for investors rather than saving accounts and fixed deposits. With at least 10% of income, investors could invest in Reksadana  which on the average offered return of 20% per year.

From the above picture it was apparent that market players who re-started their activities after Idul Fitri holidays could energize the market. Somehow the chances for Rupiah to strengthen was still thin as there was no positive sentiment in the market. For that matter, Rupiah value till last week end [16/8] would be in the range of Rp 10,325 – Rp 10,375 per USD and over the week would be in the range o Rp 10,300 – Rp 10,350 per USD.

The Capital Market

Just like Rupiah, IHSG was also under pressure; early last week [12/8] IHSG inched down by 0.36% to become 4,625.90. Ending transaction last Thursday [15/8] JHSG was closed to drop by 14.604 points [0.31%] to the level of 4,685.129. Meanwhile index of LQ 45 was closed to reduce by 4.961 points [0.63%] to the level of 781.325.

In America, Wall Street stock market was under sharp correction after released report of Wall Mart and Cisco financial performance which was disappointing. The fall of US stock market was the worst since early June last. During closing session on Thursday local time [15/8], index of Dow Jones dropped by 225.47 points [1.47%] to the level od 15, 115.19. Index of Standard & Poor 500 dropped by 24.07 points to the level of 1,661.32.

Meanwhile index of composite Nasdaq sank by 63.16 points [1.72%] to the level of 3,606.12. Index of MSCI Asia Pacific inched down by 0.3%. Over the week, Asia stock market inched up by 0.4%. Among the reference indices in the region, Topix Japan sank deepest by 1.2%. Acts of selling spread out all over Japan in line with strengthening of Yen at 0.1% this morning. Meanwhile index of Kospi South Korea dropped by 0.7%, index of Kospi South Korea dropped by 0.7%, index of S&P/ASX 200 Australia inched down by 0.9%.

In addition to the above Asian stock market was also subject to market player’s prediction about the possibility of the Fed axing stimulus of QE next September. Such was with reference to some positive data in the USA as related to sales of House and consumers’ trust. Market players believed that the Fed would axe stimulus by next month. They needed assurance that axing of stimulus was the signal of bettered US economy.

Last week end [18/8], IHSG was predicted to again move in the red zone on account of negative sentiment in the global market. Acts of selling again happened on high selling shares, leading IHSG to the level of 4,650-4,680. Meanwhile index of Nikkei 225 weekened by 136.48 points [0.99%] to the level of 13,616.46. Then index of KOSPI dropped by 12.67 points [0.66%] to the level of 1,911.24.

In general weakening of IHSG was triggered by the regional stock market which weakened as worries mounted that the Fed would reduce stimulus in September in line with Europe’s economy which was moving out of recession was indication that the world’s economy was strengthening. Stimulus policy would be announced at the Federal Open Market Committee [FOMC] on September 17-18 2013.

Uni Europe’s economy posted growth on Q2/13 of 0.3% after contracting by 0.3% in Q/13. The growth was driven by Germany’s economic growth 0.7% and France 0.5% after contracting in the last two quarters. Even Portugal who was under recession since 2011 grew by 1.1%.

The only thing was, increasing prices of world’s commodities in the past few days was no indication that commodity based shares, especially mining, would rebound. The positive signal of bettered import export data of China and the Euro zone was benefited by speculators to invest on short term basis.

Prices of some world commodities like oil, nickel and tin were increasing significantly. World’s oil price once strengthened by 2.72% to the position of 106, 16 per barrel, price of nickel increased by 3% to the level of USD 14,735 per USD while price of tin had strengthened by 1.69% to the position of USD 22.100 per ton. On yearly basis, oil was a commodity posting significant increase compared to gold, nickel, tin or CPO.

The hop to jack up IHSG was in fact that some private companies and BUMN planned to release some of their shares through IPO. According to OJK there were 5 companies which were preparing to enter the BEI hall. OJK also pled BUMN to immediately go public. IPO would help companies to develop their business and jack up their performance.

BEI posted market cap by early August 2013 the amount of Rp 33 trillion. The profit made by this stock market came from IPO Rp 12.78 trillion, while limited right issues came to Rp 18.20 trillion and offers amounting to Rp 2,02 trillion.

Throughout semester one 2013, BEI had enlisted 24 companies offering their shares. In addition to that the increasing corporate bonds contributed to the performance of the capital market this yeas with raised funds up to Rp 31.14 trillion. The authorities listed 5 companies which were processing permite application of corporate bonds in Quarter two 2013.

BEI was optimistic that performance of the domestic stock market was still increasing till end of year since economy was in adverse condition, so the capital market was a safe haven for corporate financing compared to bank’s credit. To the investors, shares and their by product like Reksadana insurance were offering better yield than investment instruments like gold, coal, nickel, tin, CPO and state’s bonds.

The average return offered by shares investment, to refer to the increase IHSG over the past 8 months was 7.78%. The investment return in share based by product for one year like Reksadana and shares came to 10.7%, while the return level of mixed Reksadana for a year was 6.52%.
 The only commodity which was priced higher than shares was crude oil with increase percentage of 15.95% over the past 8 months, based on world’s oil price of 2012.

Capital market’s zest was also enlivened by OJK’s tactical move. To increase the number of investors at the at capital market, OJK proclaimed they would launch a campaign called Stock market Loving National Campaign. This step was expected to accelerate formation of the Investors Protection Board [IPF] with the function to protect shares transaction with security agencies.

From the above picture it was apparent that this week IHSG would tend to be volatile in the range of 4,660-4,700 with tendency to inch up in line with return of stock players from their long holiday.
Business News - August 21, 2013

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