Ending of the Federal Open Market Committee [FOMC] session on December 17 – 18 2013 marked certainty of Tappering Off worth USD 85 billion per month by The Fed.
Certainty of Tappering Off by the Fed, i.e. reduction of stimulus of USD 10 billion per month for the next 9 months brought assurance for all of the world’s moneymarket. Predictably the market would make adjustments to the Fed’s action. Rupiah would react, and so would IHSG.
In the short run there would be mild restlessness to recover soon because certainty was there. In the mid and long term Tappering Off would bring positive sentiment to the global moneymarket including Indonesia.
Rupiah exchange rate value in inter-bank transaction in Jakarta last Friday [12/12] tend to stagnate at Rp12,205 per USD, but the Government stayed on the alert over any possible effect of the Fed’s announcement of Tappering Off to the amount of USD 12,205 next January.
The Fed’s announcement of Tappering Off might bring Rupiah value down to a disheartening lever for the short term. At this point it would be necessary for BI and the Government to constantly monitor Rupiah movement. Somehow this impact of stimulus reduction by the Fed would predictably not as severe as before because now decisions were certain.
Tapering Off was something bound to happen but reduction of stimulus would be gradual. Marketplayers were reminded not be over anxious and over reactive to the Fed’s decision so negative sentiment would not injure Rupiah. It was right for the Government to stay calm and focus more on efforts to improve existing homework.
A long line of problems were waiting to be tackled, among others dependency on raw materials and oil-gas, food resiliency, and deficit in current transaction. In terms of Rupiah it would be necessary to control capacity of foreign currency whereby to balance supply and demand. Other anticipative step was to anticipate Tappering Off by the Fed, for which BI was trying to solve by increasing BI rate to 7.5%.
BI felt sure that Rupiah exchange rate value which broke through Rp12,000 per USD was safe because it was still supported by Indonesia’s sound fundamental economy.
Australian Dollar inched down by 0.19%, Singapore Dollar by 0.07%, China’s Yuan by 0.01% and Malaysia’s Ringgit by 0.1% against USD; but Japan’s Yen inched up by 0.27%, followed by Korea’s Won by 0.1% and India’s Rupee by 0.11%. Meanwhile Bi’s mid rate was set at Rp12,105per USD. According to Bloombreg Dollar Index, Rupiah was appreciated by 0.01% to the level of Rp12,105 per USD after sinking deep to Rp12,106 last weekend.
BI pled the market to stay calm as BI kept trying to maintain monetary stability by making measurable intervention to keep forex reserves at safe level. BI believed that prediction of some analyst who mentioned that Rupiah was continuing to weaken as it broke through the critical level of Rp 12,150 per USD was only speculation. However it should be borne in mind that Indonesia still had homework which was not easy to do.
Indonesia’s economic challenges for the future was still hard especially to recover balance of payment. The challenges was from the external, i.e. the global cycle and internal problem which was structural. The global economic landscape was changing, commodity prices were down while Tappering Off was underway. The reserve process could increase interest level of developed countries and trigger capital outflow which increased vulnerability of Balance of Payment as deficit in current transaction was still on.
The current transaction which for eight quarters still in deficit could suppress Rupiah which had the risk of increasing inflation and finally hindranced long term sustainable growth. At the moment the process of economic adjustment was underway although domestic demand was still strong which tend to suppress current transaction.
US economic growth which was predicted to recover next year would bring positive impact with the recovery of US export and increase forex income from export which would strengthen forex reserves and increase liquidity at home. There was no need to panick by Tappering Off, because flat flew out was hot money which would be compensated by forex reserves from export.
The Financial System Stability Coordination Forum [FKSKK] also saw that Indonesia’s economy was ready to face all the external challenges and was ready to anticipate all obstacles toward 2014. Hence last weekend [20/12] Rupiah moved in the range of Rp11,900 – Rp12,100 per USD and would continue over the week in the range of Rp11,750 – Rp11,950 per USD.
The capital market
Index of IHSG last Thursday [19/12] was closed to strengthen by 35.69. points or 0.85 percent to become 3,231.98. Strengthening of index was in line with the Fed’s action to axe stimulus to USD 75 billion per month against the persent USD 85 billion per month.
The fed’s resolution to drum up foreign investors to enter the stockmarket with net buying with net buying came to above Rp170 billion. Trade volume came to 4.421 share lots with transaction posted at Rp4.46 trillion. At regional level, stockmarket in the Asia Pacific region were posting increasing in line with Tappering Off execution in the USA.
Starting transaction last weekend [12/12] in morning session, IHSG increased by 57.761 points [1.36%] to the level of 4,253.558 in a rally at Asian stockmarket. Positive sentiment came from Wall Street which the night before broke record as the Fed ran Tappering Off. Index instantly increased to its highest position at 4,257.168 not long after trade opening; broadly speaking index could still persist at positive zone.
Starting transaction last Friday [20/12] IHSG index was open to inch down by 6.678 points [0.16%] to the level of 4,225.302. Index of LQ 45 was opened to inch down by 2.133 point [03.30%] to the level of 703.310. Index instantly fell to into the red zone since opening session. High rising shares were released fro profit taking.
Asian stockmarkets were moving the mixed way. Many marketplayers were reluctant to make transaction toward long holiday. Index of Composite Shanghai rose by 2.74 points [0.13%] to the level of 2,130.53. Index of Hang Seng weakened by 30.000 points [0.13%] to the level of 22,858.75. Index of Nikkei 225dropped by 81.83 points [0.52%] to the level of 15.777.39 Index of Straits Times strengthened by 6.72 points [0.22%] to the level of 3,076.95.
Shares of Wall street tend to end up flat as investors tend to wait; but Dow Jones managed to move up to make new record, while index of S&P 500 and Nasdaq were corrected especially due to technological shares. Trade volume was thin, way below the average daily transaction. Many marketplayers were securing their positions toward year end holidays.
During closing session on Thursday [19/12] Index of Dow Jones rose by 11.11 points [0.07%] to the level of 16,179.08, a new record. Index of Standard & Poor’s thinned out by 1.05 points [0.66%] to the level of 1,809.60. Index of Composite Nasdaq lessened by 11.93 points [0.29%] to the level of 4,058.14. Dow Jones once broke through highest intraday level ever at 16,194.72 while S&P 500 needed 3 more points to make a new record. Both reference index had risen by more than 20% this year. The strengthening was driven by stimulus from bomds given by the Fed.
At home, the Government’s plan to restrict export of raw minery products as per early 2014 could serve as positive catalyst to the metal and metal and mineral sector. With this restriction supply of mineral products from Indonesia could lessen commodity prices. Some analyst rated that emitents could reap profit from increase of commodity price while producing minery by-products as well in accordance with to Government’s regulations.
Generally speaking investors responded positively FOMC’s decision who decided to do Tappering Off per January 2014 next. The stock market was not affected by FOMC decision since Tappering Off was only USD 10 billion per month which indicated that US liquidity was still sizable.
On the other hand, today IHSG’s index level already reflected assumption of the post Tappering Off period. By prediction, IHSG might reach 4,300 – 4,400 next week. The Fed’s certainty would comfort and ease the market so soon or late IHSG might stabilize toward 4,500 all through 2014 in spite of the General Election. Company’s zest to enlist their shares at the Security Exchange remained high so they could serve as motivators to all stockmarket players.
Business News - December 27, 2013