Thursday, 7 November 2013


The Moneymarket

Rupiah value against USD at the inter-bank spot market Jakarta on Friday [11/10/2013] managed to strengthen. The positive expectation of emitents’ high performance was the catalyst, which was among others stimulated by the prospect of negotiation between President Obama and the faction of public Party in Parliament.

Most likely the Republic Party would consider the proposal for elevation of debt ceiling, at least for four to six years ahead to allow time for negotiation. Meaning lending capacity be increased over that period. Accordingly, Rupiah tend to strengthen in the range of Rp11,300-Rp11,400 per USD.

Rupiah also had support from the market which was focusing attention on US emitent’s report in quarter III-2013. As America escaped recession, assuming there was agreement between President Barrack Obama, the recovery process of US economy might continue.

US emitents’ report had been projected to be positive through quarter III-2013 because even the previous economic data had already shown positive increase especially in US employment data. Better employment data indicated increased profit in many companies in America. Evidently they were expanding business and increased their personnel. For that matter company profit in the USA were expected to be positive, enhancing market desire to go for risky assets including Rupiah.

Rupiah also had positive sentiment from the statement of China’s Prime Minister Lee Keqiang that China’s economic growth was expected to remain settled at above 7.5% for 3 consecutive quarters. China also planned to promote economic collaboration with Indonesia after meeting of China’s Prime Minister with President SBY, all contributing to Rupiah stabilization process.

Last week data of US unemployment claim was released which posed as negative sentiment for USD because the figures worsened to 374 thousand against the previous 308 thousand. Last weekend data was released on sentiment of US consumers which weakened to 77.2 against the previous 77.5. For information, rupiah value against USD last Thursday [10/10] was closed to strengthen by 40 points [0.34%] to the position of Rp11,480/Rp11,500. The closing also served as the strongest and weakest intraday at the level of 11,545.

Economists predicted that if America failed to pay their debt, there would be hard blow to world’s economy. Investors would abandon USD and change to other currencies while the stockmarket would be smashed as well. Many circles were worried about what was happening in America, because it would rock the boat. So far the US Congress and the US Government had not arrived at any agreement in regard to passing of budget including the health insurance plan know as Obamacare.

The good news for this week was announcement of the White House spokesperson which said that US president Barrack Obama supported Janet Yellen to be the first women governor of the Fed replacing Ben Bernanke whose office would end next year.

Marketplayers responded positively to this, but the main focus was still the case of shutdown and deadline for default. Yellen, who was presently Deputy Governor of the Fed, was Obama’s favorite candidate to be the Number One person in the Fed which had great influence on the US financial sector and even the world.

Yellen was known to have worked with the Fed for long and participated in scheming up economic stimulus program to again promote employment and control inflation. Yellen’s first assignment when appointed as Governor of the Fed was to decide when stimulus would be reduced and such was what made the world’s finance sector to rattle. Economists and marketplayers predicted that the Fed’s stimulus in the from of buying bonds worth USD 85 billion per month would continue.

Obama’s statement underscored anxiety in the USA and the world about chances of default if political stagnation continued over the week [17/10]. Obama planned to urge the Republic party to pass the Law which would elevate debt ceiling and re-open the closed institutions but such should be realized without coming to terms with Republic’s demand,

Spokesperson of US Parliament John Boehner instantly rejected Obama’s proposition about short term solution which did not include the Republic Party’s demand. Boehner stated that every elevation of debt ceiling regulated by the Law must be followed by deficit reduction.

Debate between the two leaders things even worse. Now both parties were scheming up prerequirements before negotiations could be continued. Some Government institutions were having partial shutdown since October 1 last. The US Finance Department predicted the Government would fall into default unless debt ceiling was increased this month.

At home positive sentiment came by as the Government planned to issue Promissory Notes [SBN] in foreign currency, also Syariah bond or Sukuk in foreign currency for the domestic market. Release of bonds in foreign currency at home was for the first time there ever was.

The objective was to absorb USD at home, an instrument for such never existed. The plan would be executed by early November 2013. The Government was expecting to reap around USD 500 million from this plan. The target was not too high; today the Government was preparing the scheme up, including all aspect especially in terms of Standard Operating Procedure [SOP].

In the recent development, a different opinion emerged that Rupiah exchange rate today had reached a new equilibirium and positive for increasing export and reducing import of less essential products. The present position of Rupiah already represented Indonesia’s fundamental economy.

Currency strengthening was not always good for national economy. Two years ago Rupiah was below Rp9,200 per USD which was really too strong; credit was spurred on as people tend to borrow USD. A condition a such indicated that people were not aware that Rupiah was on the downturn.

Other good news was that Indonesia’s forex reserves by end of September 2013 was posted at USD 95.7 billion, an increase against the position by end of August 2013 at 93.0 billion. The position of fores reserves was enough for 5.2 months of import only the forex reserve was equal to 5.4 months of import.

The increase of forex reserve was thanks to the execution of BI’s policy mix to maintain Rupiah stability and coordination with the Government to lessen transaction of current account.

Confidence of the foreign currency market at home turned stronger with activated and more balanced supply and demand of foreign currency in the making of Rupiah movement. Besides, increase of forex reserve was also due to Government’s initiative to issue State Syariah bonds in the form of foreign currency as one of the sources of fiscal deficit financing.

BI was expecting that by 2014 deficit in current transaction [DBT] could reach 2.5%-2.7% of GDP, by far lower than the deficit in Semester I/2013 at 4.4% of GDP or USD 9.8 billion. Surplus in trade balance in August 2013 showed that DTB could be lessened in the next few months. Previously BI predicted in this quarter 3 DTB could be lowered to 3.4% of GDP.

In 2011 through 2012 Indonesia’s economic growth had been moving too fast, while on the other hand the domestic industry had not been able to maximize production so import was needed, creating DTB. The widened DTB had worsened Indonesia’s fundamental economy.

A condition as the above weakened Rupiah value against USD, although it was now synchronous with fundamental economy. Meanwhile in terms of fiscal policy. The Government must be able to control prices of horticulture products which had been the greatest contributing factor to inflation.

BI was also expecting the portion of spot transaction still dominating the domestic forex market could be reduced in line with the issuance of BI Regulation no. 15/8/PBI on Hedging to bank. BI expected that spot transaction whose market share was 73% on the average could lower and the SWAP transaction increased. In case of SWAP transaction, today the market share at the domestic market was 21%.

The domestic forex market was still developing as indicated by the condition of excessive demand of forex which was more persistent, limited instrument or transaction. This was related to Rupiah vulnerability against turbulence from internal or external direction.

The stipulation made by BI or the Regulation of the Ministry of State Owned Companies no PER-09/MBU/2013 Transaction of Hedging of BUMN released on September 25 2013 last, was expected to reduce bank costumers’ dependency on spot transactions to fulfil need of foreign currency.

Supply and demand of forex at the domestic market was expected to be balanced because with activated non spot transactions, exporters who were in possession of forex could enter and expect to continuously promote domestic forex market. In PBI No. 15/8/PBI/2013 the hedging transactions on Rupiah among others in the form of Forward and SWAP.

The hedging value of underlying transaction was in the form of economic activities including debt payment in foreign currency, import-export activities, and investment. As with nominal value of hedging transactions, the highest value was nominal value of underlying economic activities stated in the supporting record of activities.

There was also positive news that Japan was collaborating with Indonesia to overcome market turbulence in anticipation of the Fed’s decision of QE III, a policy which might trigger capital emerging countries.

Japan’s Deputy Finance Minister Mitsuro Furushawa stated that Japan wished to increase limit of currency swap with Indonesia soonest. Swap was securing step comparable to bank’s credit limit which enable countries in need of fast dollars to obtain dollars whenever needed.

Tokyo had agreed to swap with Indonesia to the amount of USD 12 billion last August; however Japan was now preparing to increase the scale, but Furusawa was not willing to give the breakdown.

The plan to increase SWAP was in line with other countries offering their help to Indonesia. Last September Japan had increased the value of currency swap with India to the amount of USD 50 billion, another Asian state affected by exodus of foreign capital. The aniexty cooled down as the Fed postponed moratorium of their easy money policy last month. The suspension eased down US QE monetary policy, however the Government of Japan predicted the policy would be executed in the near future and they warned the emerging market to anticipate early.

The plan to increase currency swap with Japan was when China and Indonesia signed currency swap amounting to 100 billion Yuan. South Korea would predictably also signed the same facility in the near future; hence Rupiah value had the chance to strengthen in the range of Rp11,250-Rp11,350 per USD.

The Capital market 

IHSG index still strengthened to 4,534.63 after inching up by 1.06% or 47.9 points during early trading session last Friday [11/10]. Trading volume was posted at 155.1 million shares worth Rp237.09 billion. Strengthening during early session was supported by 123 shares which strengthened significantly; another 4 shares slumped and 42 shares remained unchanged.

Index continued to strengthen from the level at the closing session last Thursday [10/10] at 4,486 to opening session at 4,523.92. Strengthening of sectoral index was in the mixed industry sector. Meanwhile the stockmarket in the USA on Thursday [10/10] strengthened as indicated by index of Dow jones posting the best increase since December 2011.

Index of Dow Jones rose by 2.1% to 15,126.07 with support of Boeing Co shares which rose by 3.8%. Index of Dow succeeded to break through 15,000 after being below that level 4 days ago. Index of S&P rose by 2.2% to 1,692.56 with support of all industrial sectors including the financial sector. Meanwhile index of Nasdaq rose by 2.3% to 3,760.75, the highest increase since January 2 2013.

Strengthening was due to recommendation by a politician of the Republic Party in House to temporarily extend deadline of US debt Ceiling. House members agreed to allow time to negotiate debt policy; meanwhile Asia’s stockmarket was having rally during trading last Friday [11/10]. Index was in line strengthening of US stockmarket energized by house members to agree on uplift of debt ceiling.

Index of Nikkei strengthened by 1.2%, index of Hang Seng rose by 1.3%, index of ASX Shanghai rose by 1.4%, index of Kopsi rose by 1.1%. the sentiment caused change of price. The main index of China was having rebound after weakening during Thursday session [10/10]. Positive came from Government policy launching currency swap with countries of the Euro zone. This was an initial step toward Yuan becoming a global currency.

Bank Indonesia’s policy to maintain BI rate at level 7.25% was rated as a relief to IHSG to move to positive territory, emitent’s performance being no expection. To some financing sectors like property, and automotive, BI rate policy seemed to appear as no burden.

Somehow marketplayers must remain cautions in making investment where IHSG was still fluctuative. Moreover weakening of Rupiah was still continuing. Sentiment from BI was only short term, not much could be expected for the long run.

As known, there were still some negative sentiment which influenced the stockmarket although release of the Central Statistic Board [BPS] in September showed deflation and surplus of trade balance. So last weekend [11/10] IHSG was moving flat around 4,500-4,550.

Released BI’s decision to maintain BI’s rate at high level accompanied by increased forex reserves contributed to IHSG betterment. IHSG turned positive in line with blooming Asian stockmarkets. Yet only weeks ago there was mounting fear of US stockmarket again weakened toward deadline of October 17, 2013 which brought gloom to Asian stockmarkets including IHSG.

Now the improving dialogue process between US Congress and Senate would bring positive sentiment to the global, regional and local stockmarkets – as indicated by increased index of Dow Jones, spreading out to Asian regional stockmarket and finally IHSG in the range of 4,450-4,600 this week. Financial performance of emitents through quarter 3 this year was predicted to bring positive sentiment also to the local stockmarket.

Business News - October 18, 2013

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