Monday, 2 December 2013


The situation of moneymarket and stockmarket today was marked with negative impact from labor unions’ demonstration demanding Minimum Provincial Wages [UMP] of 50%. As a matter of fact some province stipulated increase of UPM below workers’ demand.

In the event that workers refused to comply to the UMP increase stipulated by some Governors,  there was most likely to be more demonstrations bursting out. This would certainly worsen the condition and generate negative sentiment in the market. In the positive case when all workers’ problem would be solved, there was good chance that Rupiah and IHSG would be stabilized by end of this week.

The Moneymarket

Rupiah value kept weakening against USD during morning session last week [1/11]. Data of Bloomberg Dollar Index had it that Rupiah inched down by 0.81% per USD. Rupiah weakening happened when USD. Rupiah weakening happened when USD value was cross-checked against various currencies in the Asia Pacific region.

Such also happened when the BPS Board of Statistics announced inflation data through October 2013 at 0.09%. By year on year, inflation touched the level of 8.32% year-to-date posted at 7.66%. In fact with low monthly inflation there was opportunity for Rupiah to strengthen during closing session last weekend in the range of Rp11,250 per USD; but because of mounting laborers demonstrations in many cities, most probably Rupiah would be suppressed to the level of Rp11,350 per USD. If things changed for the worse, this Rupiah would still be stuck at Rp11,400 per USD. On the contrary if wages problem could be settled, there was chance Rupiah would strengthen in the range of Rp11,150 per USD.

Previously the announcement of budget axing to suppress deficit in current transaction by the Governments of Indonesia and Malaysia last week boiled down to strengthening of currency value of both countries.

Some moths ago Rupiah and Ringgit were deeply depreciated against USD as there was anxiety that deficit in current transaction would lower debt rating. Since May 1, Rupiah fell by 16%. Meanwhile Malaysian Ringgit fell by 8.8% although it bounched up again; Ringgit was depreciated by 3.7% since May 1.

Rupiah strengthened by 2.2% by end of October last to become Rp10,910 per USD after the Government announced 2014 budget which reduced next year deficit to become 1.5% of GDP against this year’s prediction of 2.4%.

Some budget being saved like subsidy, would be pipelined to infra structure building like public transportation. The Government projected total expenditure 2014 would increase by 6.7%, less than this year which was posted at 16.5%.

The only thing was that domestic economy was facing risk. i.e. General Election next year which would bring new Government. The Government themselves had lowered economic growth prediction from 6.35 to 6.0%. However as for now, Rupiah value was improving after being stuck for a few months.

Ringgit was being appreciated by 0.9% to become 3.1220 against USD after Prime Minister Najib Razak announced the Government’s plan to axe Malaysia’s budget to 3.5% of GDP. Previously deficit was estimated at 4% this year.

Malaysia was having budget deficit in the past 15 years. When export posted downturn last June, it was a nightmare to some investors. Fitch Ratings lowered Malaysia’s debt rating to negative in July after increased debt and lack of fiscal reformation.

While promising increase of budget to moderate level and expanding scope of subsidy which was the target of axing, the Malaysian Government also planned to increase income by increasing goods and service tax by 6.0% which would be effective on April 2015. Although Standard & Poor’s rating agency had stated that the proposition would have no direct impact on Malaysia’s investment rating, there was at least a sound measure to manage fundamental problems which made investors feel pessimistic about Ringgit.

Budget axing by the Government of RI had the same impact. The result was that currency of both countries had regained strength. Since the widespread issue that America as planning to do Tapering off, fund managers had repositioned their assets.

They were changing the their investment strategy by firstly moving out of a developing country, including Indonesian, then reposition their asset composition. In Indonesia, the condition had its impact on currency fluctuation, although Rupiah movement was still in accordance with the regional condition.
Some analysts saw the pressures on Rupiah was not a matter monetary Quantitative Easing in the USA which was an external factor. Deficit in balance of payment and trade balance at home contributed to Rupiah movement.
While watching on deficit in current transaction and soaring inflation policy of the monetary authorities in increase BI rate must also be watched on. The policy of Quantitative Easing which was intended to control inflation, stabilize Rupiah value and minimizing deficit in current transaction which had the risk of injuring the real sector.

Banks would put brakes on credit pipelining while for the real sector it would be hard to absorb credit of high interest today. Therefore it was reasonable that when BI sets target of credit growth at 23%-24% it finally dropped to 18%-20% in line with bank’s step to increase credit interest according to BI’s benchmark rate.

The result was that there would be economic slowdown in Indonesia as the real sector and investment would be burdened by high bank interest. Besides, issue on Tapering off in the USA which would more or less affect the financial market among the emerging nations including Indonesia. The Government of RI must also watch on the trend of economic slowdown in China.

According to BPS data, Indonesia’s export value by August 2013 was posted at USD 13.6 billion, a downturn of 12.77% compared to July. Compared to August 2012, it was a downturn of 6.31%. Meanwhile non oil-gas export by august 2013 came to USD 10.39 billion, down by 18.88% compared to July 2013. Compared to export in August 2012, it was a downturn of 7.78%.

The biggest downturn in non oil-gas export was in mineral fuel USD 270.7 million, while highest increase was in gold & jewelries USD 66.1 million, while export of non oil-gas to China in August 2013 came to the highest i.e. USD 1.48 billion, followed by Japan USD 1.06 billion and the USA 0.97 billion, the third contribution came to 33.77%.

On the other hand BI projected Rupiah value would be stable in the short run after the Fed can celled their QE 3 plan, Indonesia must still be on the watch out of rupiah by internal cause, i.e. swelling deficit in current transaction and inflation pressures.

The internal factor which contributed to the process of Rupiah weakening was swelling deficit in current transaction which touched 4.4% of GDP in quarter II last. Other factor to be observed was inflation which on yearly basis touched 8.40% by end of September and could be higher again by end of 2013.

Somehow the Government reminded that BI rate of 7.25% be maintained till end of year as an effort to enhance growth amidst tight monetary condition which weakened people’s purchasing power. And yet amidst economic slowdown, the Government was obliged to maintain fiscal monetary stability which would make room for the real sector to develop.

The government through Finance Minister Chatib Basri also stressed that confidence of the Indonesian people in Rupiah would have its impact on international trust in Rupiah and national economy in general, meaning Rupiah had its dignity, at home and abroad.

Finance Minister Chatib reminded all Indonesian people on the importance of using Rupiah in every transaction in all of Indonesia’s territory. All financial transactions in this Republic of Indonesia must use Rupiah, expect for certain transactions were use for foreign currency was inevitable. The national currency is a symbol of state’s sovereignty which should be respected and all Indonesian citizen must be proud of Rupiah; Rupiah had been accepted as medium of payment since independence day.

For that matter, Indonesia people’s confidence in Rupiah would have its impact on confidence of the international community’ in Rupiah. Every seller were forbidden to refuse Rupiah in all transaction where use of Rupiah was compulsory.

Rupiah is extremely meaningful in the life of a nation, for that matter all actions which had the intention to destroy Rupiah was not permitted.

The Capital Market.

Meanwhile index of IHSG in the morning session last weekend [1/11] weakened by 50 points due to heightening act of buying second their premium shares. Index spent a long time at negative territory.

To start transaction, IHSG was opened to inch down by 31.737 points [0.70%] to the level of 4,478.179 being under pressure to sell and must return to around 4,400. Index had negative sentiment from Wall street which weakened last night.

Index nose dived since opening of transaction this morning. Somehow index managed to turn positive for a moment, but sank again to its lowest position at 4,450.398. Finally during closing session I last Friday [1/11/] IHSG fell by 50.666 points [1.12%] to the level of 4,459.965. Meanwhile index of LQ 45 fell by 9.142 points to the level of 745.665.

In short, IHSG was suppressed further to 1.12% to the level of 4,459.97 by end of session I afternoon last week [1/1]. Such was when data of Indonesia’s inflation on trade balance was announced. All through the day index moved in the range of 4,450.39 – 4,518.65. of 480 shares transacted, 51 strengthened, 178 weakened and 25 remained stagnant.

Eight of the nine sectors at the Indonesia Security Exchange [BEI] weakened by deepest downturn at the property sector posted at 2.3%. The only sector that strengthened was agribusiness 1.6%. Index of Bisnis Indonesia [economic daily] version also dropped by 1.35% to the level of 373.39.

For information, at the morning session last week, BPS announced inflation data through October 2013 at 0.09%. By year on year, inflation touched the level of 8.32% and by year-to-date posted at 7.66%. A notably positive data and could serve as catalyst of IHSG upturn.

Meanwhile majority sectoral index of the at the stock hall was corrected expect one sector. Premium shares and sector tier shares was the subject of investors’ act of selling. Sentiment from the weakening US and regional stockmarkets, in addition to the Fed starting to do Tapering off started marketplayers’ anxiety. Only thing was the announced of October low inflation was sustainer of IHSG downfall.

Trading of shares in half a day of last weekend [1/11] ran moderately with transaction frequency of 92,477 times at the volume of 2.533 shares worth Rp2.804 trillion. 52 shares rose, 176 shares dropped, and 88 shares stagnant. Stockmarkets of the Asia region were still moving the mixed way with tendency to weaken. Only China’s stockmarket managed to strengthen.

Index of Composite Shanghai rose by 2.53 points [0.12%] to the level of 2,144.14. Index of Hang Seng thinned out by 14.36 points [0.06%] to the level of 23,192.01. Index of Nikkei 225 dropped by 174.03 points [1.21%] to the level of 14,153.91. Index of Straits Times weakened by 15.9 points [0.47%] to the level of 3,195.48.

At the closing session last weekend, IHSG would be in the range of 4,440-4,480; meanwhile over the week to move in the range of 4,430-4.470. It was still hard for index to break through 5,000 as negative sentiment was still lurking around.

The only thing was that the banking sector as one of the important pillars of Indonesia’s financial system was able to carve out outstanding performance amidst inflation pressures and increased bank interest and global economic uncertainty.

Starting this week till end of year, predictably shares of the banking sector would be hunted by investors thanks to strong fundamental support. To observe performance of quarter III/2013 which was only publicized by high strata banks, it was clearly visible that the banking sector had strong fundamental.

Such was clearly visible in various indicators. Net profit of high strata banks was still able to post 2 digits growth in quarter III-2013 compared to same period last year, credit, and third party fund which rose between 20%-30% and fast growing assets. Bank Mandiri as the only bank on the top ten list in Asean had asset of Rp700 trillion.

Big banks were still enjoying net interest margin above 5%, even 8%-9%. The good news was that non-performing loan was still under control on the average below 1% amidst increased bank interest.

Based on BI’s report, the average Capital Adequacy ratio of national banks was still high, reaching 17.89% per August 2013. Strong capital indicated that banks in Indonesia were generally in solvent condition with notable capacity to mitigate risk.

Stress test exercised several times by BI on banks indicated that in terms of capital, liquidity or credit unveiled bank’s strong resistance to various risk like economic slowdown, increased bank interest, and currency depreciation.

Various indicators signaled that the banking industry in Indonesia was most apetizing with profitability better than banks in other Asean states. On the average ROE, ROA and NIM of Indonesia’s banks were superior in Asean. With high achievement, performance of shares of the banking sector were believed to be outstanding especially the first tier banks.

Impressive performance of banks in Indonesia made this sector the target of foreign banks especially from Singapore, Malaysia, Thailand and South Korea. High profitability tempted to prey on national banks. Foreign banks were known to command over 50% of bank’s assets in Indonesia. Five out of ten first tier banks in Indonesia were foreign banks and the 10 first tier banks commanded over the national banking sector was indeed inevitable.

Unfortunately foreign banks tend to play in the consumptive sector. A research proved that foreign investors in the banking sector only had its short impact on efficiency, but in the long run the positive impact would diminish. This must be observed by investors so they could be selective in choosing banking shares.

In the future, national banks were expected to consolidate shoulder to take command of the market, and be the master in their own territory. National banks knew their market’s potential and knew the consumers habit and behavior better than foreign banks. For that matter national banks must upgrade quality of the human resources, by quality or quantity. National banks must keep abreast with technology, expand network and create innovative banking products.

The potential credit in Indonesia was still great in view of the credit-to-GDP ratio which was only 31%. Many productive sectors were waiting to be financed, from infra-structure to industry, service, micro, small and medium business [UMKM]. The consumption sector was also attractive like automotive and credit cards in line with the growth of lavish middle class. Under the present circumstances, banks needed to be encouraged to expand financing to export based business.

The only thing was that beside prospective banking business, in the future there would be some risk to be observed.

Firstly, the risk of increasing NPL in line with increased bank’s interest. NPL should be controlled at safe level so as not to gnaw on capital. Increase of bank interest would slowdown credit expansion. On the other hand credit expansion must be halted to minimize macro economic pressures originating from deficit in current transaction.

Secondly, global economic uncertainty was still overshadowing the market in line with the Fed’s decision to do Tappering off. in this respect banks needed to step up capability to manage risk of higher uncertainty, wheter in terms of credit, marketing or liquidity.

Although BI rate had increased, it would not be justifiable for banks to increase credit interest because it would stagnate economic growth. Besides, increase of expenses would not erode NIM as long as banks were able to enhance efficiency.

Business News - November 6, 2013

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