AWAITING FOR INFLATION AND BANK INTEREST DATA

Both Rupiah and IHSG at BEI last week­end were dependent on sentiments from released inflation data and trade balance. IHSG was projected to move variably during last weekend's translation [2/5].

Inflation was predicted to drop or there would be even deflation through April. Normally inflation dropped in April. Meanwhile trade balance was pre­dicted to be surplus to as high as USD 805 billion. If inflation dropped there was a chance for B1 rate to be lowered although it might not be so for the near future because as BI was also considering increase of the Fed's interest.

Bettered trade balance indicated that export demand was up which would increase foreign curren­cy at home and that means appreciation for Rupiah. Export-orientated emitents would be advantaged so there was potential increase of their share price.

Eventually the Central Board of Statistics posted deflation on April 2014 at 0.02% and yearly inflation or even its calendar year 1.39%. This fig­ure was lower than March 2014 where inflation was posted at 0.08%. In April 2013 Indonesia posted deflation of 0.10%. of 82 cities, 39 were posting de­flation and 43 were posting inflation. Deflation was highest in Jayapura at 1.79%.

Food material category posted highest defla­tion, i.e. 0.22%. The clothing group was also post­ing deflation because price of gold was internationally also posting downturn. Ready food, beverages, ciga­rettes and tobacco posted highest inflation at 0.07%. Somehow deflation still happened due to price down­turn in food category. And price of clothing could balance increase of other groups. Indonesia's trade balance on March surprisingly posted surplus of USD 673 million.

Export value in March 2014 came to USD 15.21 billion, up by 3.95% against previous month. Compared to March 2013, export increased by 1.24%. Non oil gas export roses significantly by 5.59% to become USD 12.57 billion. In total, export of January-March was USD 44.32. billion, down by 2.42% against last year. Indonesia's biggest market share was China at USD 4.93 billion, USA USD3.83 billion and Japan USD 3.57 billion. Export of non oil-gas commodities to Asean was posted at USD 7.08 billion and to Uni Europe USD 4.16 billion.

Two product categories which constituted most of national export was mineral fuel or coal worth USD 5.63 billion and CPO USD 5.29 billion. Ex­port by goods category through January March was: industrial goods increasing by 3.5% to become USD 29.7 billion, constituting share of USD 66.05%, agri­cultural goods increasing to USD 1.28 billion consti­tuting 2.88% share, mining commodities slumped by 24.2% to become USD 5.9 billion with share 13.31% while export of oil gas dropped to USD 7.87 billion constituting share 17.76 % share. With downturn of oil gas export, there was upturn in industrial com­modities. Apparently the industry was striving to jack up export when raw mineral ore was forbidden for export.

Import of March came to USD 14.54 billion, an increase of 5.4% against February. Increase of im­port was posted in both oil gas and non oil-gas sec­tor. Import of oil-gas increased to USD 4.01 billion, while import of non oil gas also increased by 1.91°/0 to become USD 10.53 billion. Import growth was claimed to be slower compared to export of oil-gas of the same month. Total import of January March was USD 43.25 March, down by 5.27% against the year before.

Import of consumer's goods increased to become USD 2.97 billion, while import of auxiliary goods were USD 7.21 billion and USD 0.27 billion respectively. What caused imported food to increase was the high amount of purchase of basic food com­modity like garlic, meat, etc. to control inflation - not import of garments or the like.

The Moneymarket

In the morning session last weekend 12/51 most of Asian currencies were seen to weaken against USD. Of 11 Asian currencies, 6 Asian curren­cies weakened against USD with deepest weakening happening to Thailand's Bent.

Five other Asian currencies strengthened against USD of which Yen was the strongest. Meanwhile Rupiah value strengthened by 0.11% to 0.11,546 per USD. Apparently sentiment from the external and internal surrounded Rupiah during trans­action last weekend [2/51. Rupiah was trying to resist at the level previously achieved.

However with the release of BPS data which was rated as satisfactory, Rupiah stood a chance to strengthen moderately at around Rp 11,450 per USD during closing session last weekend. Previously dur­ing transaction on Wednesday [30/41. Previously BI mid rate by end of April was set at the position of Rp 11,532 per USD.

If the level of around Rp 11,550 could be attained last weekend, over the week Rupiah still had the chance to strengthen at around Rp 1,400 – Rp 11,550 per USD due to positive sentiment from macro economic data published by BPS last week and negative sentiment on USD.

As footnote, America's GDP during quarter I of this year only inched up by 0.1 %. This disappoint­ed global investors. However, it did not stop the Fed from again axing the amount of monthly bond buying from USD 55 million to USD 45 million. Although economic data was bad in the past few months, the Fed was certain that foul weather was the cause so things would be gradually better in time to come.

So far there had been no additional informa­tion about when the Fed's rate would increase. Dollar index still resisted at below 80 before unemployment data and non farm payrolls was announced. Sales of new houses in America was stuck, but the world's economy as a whole had recovered from the winter storm effect; so it was right for the Fed to reduce monthly stimulus.

FOMC had held a meeting on Tuesday [29/4] and Wednesday [30/4] last. The Fed's Governor Janet Yellen and other Board members had previously sig­naled to axe volume of bond buying by USD 10 billion to become USD 45 billion per month, a plan to be realized this May.

Hence the Fed maintained growth rate toward normalization of policy. The Fed would leave extraor­dinary policy which was run to troubleshoot crisis of 2008 - 2009. The Quantitative Easing [QE] was released to keep long term bank interest at low level. The aim was to enhance investment and employment by the private sector.

Tappering Off started on December 2013. Bond buying was reduced from the position at that time of USD 85 billion per month to USD 45 billion per month today. Yellen had signaled before that the QE would end this year end as US economy was rated as strong enough to withstand the impact of monetary policy normalization.

Beside global factor, Rupiah movement of last week and this week would be subject to domestic sentiment, i.e. announcement of inflation data and trade balance. When BPS announced inflation data and trade balance which bettered, it bounced back as positive response which served as elevator to Rupiah strengthening and IHSG.

Only thing was that statement of Finance Minister Chatib Basri that Standard & Poor's rating agency was still not sure about national economic condition which kept them from granting Investment Grade to Indonesia might reduce the positive senti­ment over inflation data and bettered trade balance.

S&P Rating Agency in their latest release still maintained Indonesia's debt rating at stable outlook or BB +for the long run, the same as Lefore. The sta­ble rating was given as there was still Government's policy which was not effective, ineffective manage­ment, low GDP per capita, conservative fiscal policy and prospect of moderate economic growth.

S&P did not lower or uplift Indonesia's debt level, as Indonesia was rated as still able to manage macro economy effectively, although there should be structural reformation. The Minister appreciat­ed S&P's decision which maintained this debt level, because in a situation when the Government was focusing effort on structural management since mid-2013, Indonesia's rating could have dropped.

S&P promised to promote Indonesia's debt rating, provided there was definite Government's policy in regard to subsidy expenditure which would reduce fiscal fragility, improve budget performance, reduce debt burden and propel economic growth. On the other hand Indonesia could be demoted if the Government failed to respond to external factors which would affect fiscal condition or make a policy which endanger growth prospect.

The Capital Market

IHSG index inched up by 0.2% during early session on Friday [2/5]. Foreign investors made net buy of Rp 75.2 billion. Trade volume was posted at 1.1 billion shares worth Rp 1.5 trillion. 114 shares strengthened, 106 shares weakened and 66 shares stagnated.

IHSG Index strengthened against that at initial level of 4,840. However upturn was slowing down at 4,857. Investors were waiting for inflation data of April from BPS. It was believed that IHSG would soar up after BPS announcement on inflation data and trade balance which bettered as the market expected.

Highest price of shares was posted in the con­sumers sector 0.7%, followed by shares of the mix industry 0.5%. Deepest weakening was happening in the basic industry 1.1%, followed by the plantation sector 0.9%. Index of LQ 45 rose by 0.4% and index of JII strengthened by 0.1%.

In previous transaction last month [30/4] IHSG touched its highest level at 4,846.23 during early ses­sion and touched its lowest level at 4,827.48 toward closing session at 4,840.15. Trade volume dropped but total transaction increased.

Foreign investors were booking net sell with increased transaction in buying and selling. Domestic investors were booking net buy. After nose diving. IHSG was trying to rise in 2 trading session and man­aged to inch up. IHSG was carried away by strength­ening in US and. Europe stockmarket toward Interna­tional May Day.

However, index could not strengthen nota­bly because Asian stockmarket during May 1 was varied and with tendency to weaken as foreign net sell was still going on. Fortunately buying spree of consumer shares and mining had uplifted IHSG back to the green zone.

Therefore index needed more positive sen­timent to keep from weakening. The positive sen­timent was controlled inflation and surplus in trade balance last April. During closing session last week [2/5], IHSG still had the potential to strengthen mod­erately at 4,850 - 4,890 as with this week, IHSG could continue strengthening at 4,875 - 4,950.

Meanwhile shares of the regional stockmar­ket were moving the varied way. Index of Nikkei 225 weakened by 45.62 points [0.31%] to the level of 14,439.51 Index of Straits times weakened by 5.321 points 10.16%1 to the level of 3,259.4 while index of Hang Seng strengthened by 37.55 points [0.17%] to the level of 22, 171.52.

Last April, Japan's stockmarket strengthened as BoJ took safe measures by maintaining bank inter­est at 0.1 %. Increased inflation in Europe in April at 1.7% might pose as positive catalyst of the Europe Central Bank to increase interest which was too low.

Other sentiment came from the USA which worried most investors due to release of GDP data of quarter I which was predicted to Slowdown from 2.6% to 1.2% in response to the Fed's announce­ment on bank interest.

The US stockmarket was closed to vary on Thursday [1/5] with index of Dow Jones inching down by 21.97 points or 0.13%, S&P down by 0.01% while index of Nasdaq was positive at 0.31 %. Index of Nasdaq strengthened thanks to support of internet based shares like Yelp. Consumers spending was re­ported to strengthen significantly in the past 5 years in March, up by 0.9%; meanwhile ISM factory index rose to level 54.9 against the previous 53.7.

This week US investors were waiting for the announcement of non farm payroll data. Initial Job­less Claim was reported to increase to 14.000. Mean­while Europe stockmarket was closed as workers celebrated May Day. Index of FTSE rose by 0.43% but CAC slumped by 0.23%. Shares of Lloyd Bank strengthened, supported by company's profit in quar­ter I 2014.

About IHSG prospect this year, investors were advised to observe some cases. For exam­ple, production of domestic heavy equipments which stagnated over the first quarter of this year or the same as in the same period last year. Accordingly, heavy equipment traders set target this year not too from last year.

According to the Indonesian Heavy Equip­ment Producers Association, domestic production output of heavy equipments was around 1,200 units, more or less the same as last year at 1,234 units. All in all it was projected that production was the same as last year at 6,000 units. Stagnated production of heavy equipments was due to demand which was not too far different from last year.

For information, heavy equipments were only produced by demand. The reason was that buyer companies like miners were having low business due to slump of the global market. The effect was eas­ily predictable: sales of heavy equipments to miner companies dropped accordingly. Usually the mining sectors prevailed as buyer of heavy equipments. To­day the market was dominated by the plantation and construction sector.

In spite of stagnated production, heavy equip­ment producers still dared to project sales of product to increase at home. It was estimated that demand for heavy equipments at home was between 12,000 to 13,000 units. Last year 50% to 60% production capacity was absorbed by the domestic market.

This year production was predicted to increase to 70%. Demand was jacked up by various Govern­ment run infra-structure projects which was expected to be build with domestic made equipments. Howev­er it was undeniable that imported heavy equipment products would be in the market. Many foreign made heavy equipments entered Indonesia as impact of the global crisis.

Investors must also observe the property sec­tor. Word was out that fortune was still not on the side of property business in this Horse Year just look at the sales of property through quarter 1-2014 which was low.

Take for example sales of PT Summerecon Agung Tbk ISMRA] which dropped by 27.7% to Rp650 billion in quarter 1-2014 against the previous Rp957 billion. Capital liquidation problem was one of the culprits of weariness of the property sector. As known, BI tightened credit for KPR mortgage since mid last year.

Downturn of property demand was not only happening to property companies for residential sec­tor. Emitents offering industrial sites were also hav­ing the same difficulty.

Sales of Jababeka Industrial Estate Tbk [KIJA] dropped by 41.56% to become Rp 187 bil­lion in quarter I this year. Low demand for industrial land was because investors tend to be reserved in this political year. Property sales which was stuck had its impact on property emitents, Nearly all shares of property emitents were on the downturn.

The fundamental condition of some property emitents was not in good shape this year. That was the reason why investors were reluctant to buy prop­erty shares. So investors were advised not to buy property shares at the moment. If they had to buy property shares at all, they were recommended to in­vest in emitents possessing vast areas of land and business lines with strong recurring income. (SS)

Business New - May 7, 2014