Wednesday, 29 January 2014


The year 2014 held the potential of Rupiah strengthening while IHSG tend to elevate. The external factor was the contributing factor to progress beside the domestic factor which signaled positive indicator especially in terms of household consumption.

The IMF and World Bank signaled their optimism as US economy was recovering while Germany and France were just as fortunate and Japan managed to tame inflation to 0.7% last year against the targeted 2% and would predictably be attained by 2016. China was growing positively although still slightly below 8% - to be exact 7.7% last year.

The bettered external factor would uplift trade volume which generated positive impact on national producing exporter. Non oil-gas export was predicted to improve thanks to increasing global demand. All in all emitent of the plantation and mining sector might expect to have windfall from global economic improvement.

The moneymarket

USD again touched the Rp11,000 level after settling for quite a long time at Rp12,00.- level. Since early last week [ 13/1/2014] USD was traded at Rp11,830. USD stayed at Rp12,000 since December 12,2013 Meanwhile the Jakarta Interbank Spot Dollar Rate [JISDOR] issued by BI on December 12, 2013 was at the level of Rp12,005 per USD.

However, toward last week end the was a naïf forecaster who pessimistically predicted Rupiah would be losing strength against USD due to negative sentiment i.e. released positive US data in the form of NY State Empire Manufacturing Index.

With addition of MBA Mortgage application and report of Beige Book of the Fed there was more positive sentiment for USD and certainly made Asian currency, including Rupiah, had the potential to weaken. The same was with Euro which slightly slump due to release of increased inflation in Germany and downturn of Italy’s Balance of Trade.

On the contrary US economic recovery generated positive sentiment t the emerging countries since demand for goods from America would soar up to bring export-based forex income [DHE] to developing nations. In other words, dollars would pour in grater amount which increase forex liquidity and indirectly jack up Rupiah value.

In that case last week end [17/1] Rupiah should have been at the level of Rp 11,750.- Rp 1,850 with tendency to strengthen. Moreover during morning session, Rupiah at the spot market inched up against closing session on previous day. Rupiah strengthening occurred when USD was seen to weaken against most currencies in Asia Pacific.

USD sank against Yen after US Government data inflation in Consumer’s Price Index [CPI] was still above the 2% target of the Federal Reserve. The data supported The Fed’s plan to maintain bank interest at lowest level. Consumer’s Price Index grew by 0.3% in December 2013. While core inflation at CPI only inched up by 0.1% due to downturn record in medical commodities prices.

Governor of the Fed Ben Bernanke last Thursday [16/1/2014] said that the US Central Bank was well prepared to anticipate risk from their Tappering Off plan including the risk of high inflation and asset bubble. In his statement 2 weeks ago before ending his office in the Fed, Bernanke denied accusation that he was provoking inflation by adopting easy money policy in the pas 5 years. Bernanke led the nation through crisis since America’s Great Depression in the 1930’s among others by injecting enormous stimulus.

Bernanke’s also stated that the Fed did not believe that the shares and property market had been prosperous although last year both posted significant growth. The Fed was developing all instruments needed to manage bank interest, to tighten monetary policy even if balance of payment did not change or expand.

Bernanke’s statement was related to quantitative easing injection worth USD 85 billion for buying US bonds. This policy had suppressed US benchmark rate to extremely low level in the long run. Meaning, the Fed was running monetary policy normally to avoid inflation risk which was avoidable – or other similar problems. Certainly it was always possible for the Fed to be too late in increasing benchmark rate, but the fact was that now the Fed had many monetary instruments.

Bernanke stated that inflation was not his focus of attention day, considering that inflation and consumers price index were still settled at around 1.5% through 2013. About the opinion that there had been over inflation of assets, Bernanke stated that the Fed was sensitive to financial crisis, which in 2008 was triggered by bubble in property asset. However the Fed did not choose to do control, regulation, and micro prudential approach to ensure minimum risk.

To Bernanke, US economic growth had the strength to control inflation which minimized workers’ mass dismissal beside increasing consumer’s trust and brighten the growth prospect in early 2014. Low and stable inflation was good for US economy. Furthermore by February 1 next Bernanke would be succeeded by Janet Yellen, whose promotion had been approved by Parliament.

It seemed reasonable for analyst to remark that Rupiah was the “champion of losers” among falling currencies in Asia this year after sinking deep last year on account of weakening economic resilence and widening deficit which drew in USD. Rupiah was predicted to strengthen by 6.8% in 2014 to Rp11,400 per USD after weakening by 21% last year according to Bloomberg Rankings.

Societe Generale SA predicted Rupiah to step up to Rp10,250 by year end, much more than median estimate of 23 analysts surveyed by Bloomberg, i.e. Rp12,200 per USD. Among top ten economy in Asia, only China’s Yuan strengthened higher than Indonesia.

Indonesia’s Deficit in Current Transaction widened to make highest record in quarter II/2013 at 4.4% against GDP which crumbled Investors’ trust as the Fed announced execution of Tappering Off. Analyst state that Rupiah was undervalued at Rp12,000.- Trade balance was recently quite positive. Moreover Indonesia had better outlook against global growth which supposedly contribute to export recovery in second half of this year.

Governor of BI Agus Martowardojo last week stated that Rupiah would strengthen in the future against USD which was due to bettered Indonesia’s economic condition. BI was constantly stabilizing Rupiah value in accordance with national fundamental economy which supported economic adjustment the controlled way.

Betterment of Indonesia’s Balance of Payment[NPI] with lessened deficit in current transaction was supportive to Rupiah movement. Optimism of the central Bank was not related to the implementation of Law No.4/2014 and Government’s Regulation No. I/2014 on Prohibition of Exporting raw mineral ores. Evidently this regulation was well accepted by the market and the impact was strengthening of Rupiah.

The regulation to prohibit raw mineral ore issued by the Government was accepted as fair enough by holders of IUP permit. The result was that businesspeople accepted the proposal, thanks to clarity of rules and application of incentives and disincentives.

However, the impact to export prohibition for raw ore materials was downturn of export volume of raw ore materials in early 2014.this was because miner operators were starting to scheme up new business in compliance to the regulations, i.e. to build smelters. The effect was that forex income was slightly reduced.

Other elevating factors to Rupiah was marketplayers’ positive response to the release of increased interest rate of deposit insurance agencies [LPS] by 25 basic points to become 7.5% and news of increased forex reserves of ASEAN nations including Indonesia. Indonesia’s forex reserves per end of December 2013 reached USD 99.39 billion per USD. On the other hand the beginning of application of export prohibition of raw ore materials was not too negatively responded as there was dispensation from the Government for exporter companies who were committed to build smelters.

Since then, yield of SUN Promissory Notes or Rupiah especially Rupiah exchange rate based on Non Delivery Forward [NDF] of one month tenure continued to strengthen from Rp12,200.- to Rp11,950 per USD. So over the week Rupiah was predicted to move in the range of Rp11,750 – Rp11,950.- per USD thanks to improved market perception of Indonesia’s economy.

The Capital Market

After being closed negatively last Thursday [16/1] IHSG during initial session last Friday [17/1] was again struggling in the red zone. IHSG sank deep to below 4,400. IHSG by 16.47 points or 0.37% to the position of 4,396.02. Notably 66 shares went up, 81 went down, and 56 stagnated, while the total transaction value in this session was only Rp 438 billion. Over the last day last week [17/1] IHSG was predicted to be in the range of 4,380 – 4,440 with players lurking to take profit.

The news that the World Bank gave pessimistic evaluation on Indonesia’s economic growth and fluctuating Asian shares which were losing steam in spite of being closed strong, motivated marketplayers to do act of selling.

Supposedly IMF and World Bank’s estimate which was optimistic about the projection of global economy generate positive sentiment to domestic stockmarket. Demand for exported goods would increase which improved performance of exporter emitents. So positive projection of commodity prices especially CPO in this Wooden Horse Year encouraged some plam grower emitents to spur on expansion.

An example was Indo Agri Resources Ltd. a sister company of PT Indofood Sukses Makmur Tbk. [INDF] who planned to plant new plantations in plam concession zones 10,000 ha and 14,000 ha. New plantation was expected to expand existing plantations. So far total plantation area came to 270,509 ha. As planned most of the planting agenda would be executed this year.

Besides new plantations, Indofood Agri also was focusing effort on increasing CPO production output and chain of product supply. Factory expansion was to anticipate expansion of plantation areas in the future. Indofood Agri still had the opportunity to plant in their concession zone up to 80,000 ha or around one third of the planted area. The potential of land development also included sugarcane plantation area for sugar industry.

Meanwhile PT Provident Agro Tbk. [Palm] was analyzing financing strategy in the form of banking credit facility to finance some expansion plan this year such as development of CPO and refinancing of plantation in Bengkulu and South Sumatra.

The mining industry sector had better prospect year because the Minerba Lae only prohibited export of raw materials, while export of coal was still permitted. All in all coal producer emitent ha better prospect this year in line with China’s economic recovery as the biggest importer of coal from Indonesia.

Economic recovery in the USA, Europe and Japan also generated positive sentiment to non oil-gas exporters. Demand for garments, textile and Textile Products [TPT] and footwear was constantly growing especially to the USA and Japan. The construction sector was predicted to improve in line with increasing demand, most likely to support infra structure building of buildings, airports, bridges and toll roads.

BI’s benchmark rate which settled at the 7.5% level also generated positive sentiment to the stockmarket. This would stimulate companies to sell shares through IPO. So it seemed natural if this week IHSG strengthen in the range of 4,390 – 4,460. (SS) 

Business News - January 22, 2014

No comments: