Thursday, 6 November 2014


Rupiah exchange rate value against USD and IHSG at BEI this week until transfer of authority from ruling President SBY to the elected President JOKOWI would be under pressure.

The pressure on Rupiah and IHSG was neither due to increased benchmark rate by the Fed, nor by the oil price issue but rather on account of political unrest in regard to the issue of indirect election at the provincial level.

Plenary Meeting of Parliament on Friday [26/9] at 01.45 PM finally passed the Bill on Regional Election [Pilkada] in Law which stipulated that Election of Regional [Provincial] be executed through local Parliament.

Plenary Meeting of House with the agenda to decide Pilkada Law began on Thursday [25/9] at 15.30 PM until Friday [26/9] 01.45 PM. The Plenary meeting was suspended 3 times, i.e. on Thursday [25/9] 18.00 PM and 23.45 PM and on Friday [26/9] 00.30 AM.

The Plenary Meeting of House led by Vice Chairman of House Priyo Budi Santoso was marked by interruptions. Even fraction of the Demokrat Party decided to walk out as the option they proposed, i.e. Direct voting with 10 notations was not accommodated by the Forum,

Passing of thus Pilkada Law had to be done by voting as no agreement was arrived at for the two options. Were Direct Voting and Voting by Local Parliament. Indirect Pilkada Election won by the following count: total count 226 votes consisting of Golkar Party [77 votes], PKS [55 votes], PAN [44 votes], PPP [32 votes] and Gerindra Party [22 votes].

The option of Direct Election System won 135 votes in total, consisting of PDIP [88 votes], PKB [20 votes], Hanura [10 votes], Golkar Party [11 votes] and the Demokrat Party [6 votes]. For that matter, Government’s approval was declared by the Ministry of Internal Affairs Gamawan Fauzi.

Meanwhile news on economy would be outnumbered by political news. Bank Indonesia stated that every increase of Rp. 1,000 of subsidized oil price would jack up inflation of 1.1% - 1.2%. If the increase was Rp. 2,000 per litre it would jack up inflation of around 2.2% - 2.4%. If the increase was Rp. 3,000 the inflation would be around 3.3% - 3.4%.

As told, elected President Joko Widodo and Jusuf kalla planned to increase oil price when they were in office. Recorded inflation was also still within BI’s target which was set at 4.5% + 1% by end of 2014. However, the assumption was not inclusive of the oil price factor.

The only thing was that inflation of September 2014 was basically under control. BI was expecting that inflation of September would ne less than August. About Pertamina’s plan to increase price of 12 kg LPG gas in second week last September, BI hoped it would have no inflator effect.

The Central Board of Statistics [BPS] reported that inflation in August 2014 came to 0.47 percent, the lowest since 2005 and only less compared to August 2006 which was 0.33 percent. The Government, cq the Ministry of Finance Chatib Basri was expecting that OJK as financial regulator body responded instantly to deposit interest war waged by some sterling banks.

It was about time that bank regulators continued to drive industry toward sustainability, including actively responding to bank interest war which was responded by BI through mix monetary policy.

Bank’s liquidity which tend to tighten had forced some sterling banks to increase deposit interest for big depositors. Today BI rate was only 7.5%, but sterling banks could offer deposit interest up to 11%.

Hopefully the banking industry could apply the prudential principle in running intermediation; so the banking sector could anticipate external turbulences. The next few years would be hard time for the national banking sector especially in regard to the Fed’s maneuvers.

The Fed’s plan would threaten economy of the emerging nations whose fundamental economy was weak. So increase of FFR by the Fed had the potential to drive capital outflow from the emerging countries.

The shallow Indonesian moneymarket might trigger domestic economic vulnerability. In case of global turbulence. The banking sector as greatest contributor to national economic growth was expected to be extra cautious in running business. Janet Yellen’s remark about the possibility of the Fed running FFR sooner strengthened USD influence.

The Moneymarket

Last weekend [26/9] USD strengthened against world’s leading currencies. This indicated that America’s economy was on the way to recovery. At the forex market in Tokyo Euro was traded at USD 1.17, the weakest position since November 2012.

USD also strengthened against Yen. USD was traded at 109 Yen, up against the previous 108.73 yen. USD still had the chance to reach 110 Yen, which was due to short term net sell potential by investors. Strengthening of USD was supported by economic recovery in the USA. In the near future increasing bank interest in the USD would materialize.

Evidently during morning session last weekend [26/9] Rupiah value against USD weakened at Rp. 12,000. Strengthening of USD was driven by statement of the Fed’s executive about time frame for increasing interest.

Rupiah value was opened to weaken to Rp. 12,001 per USD. Rupiah was opened to inched down from Rp. 11,983 per USD against previous position. By noon’s session Rupiah was still struggling at the level of Rp. 11,900 – Rp. 12,030 per USD. meanwhile JISDOR rate also showed Rupiah was weakening to Rp. 12,007 per USD. Rupiah was corrected by 60 points against the previous position Rp. 11,947 per USD.

So far, nearly all US data was posted to worsen. Still persisted and was able to strengthen which was triggered by the Fed’s officials remark.

USD was traded at the position of Rp12,015 USD strongest position was Rp. 12,020. There were at least two factors that caused Rupiah weakening:

Firstly, the global factor, in regard to the Fed’s plan to increase US benchmark rate.

Secondly, there were speculations that the US Central Bank would increase benchmark rate in Q-4 2014, but looks like it was only trader’s speculation. Most probably US benchmark rate was no clarity about US monetary policy, global moneymarket would remain turbulent and USD would be in bullish trend.

Passing of the Pilkada Bill by Parliament would be a bad precedent for the future Government. It was feared that the governance of President Jokowi-Jk would not run smoothly because they would have to face opposition in the region. The reason was because the Governors elected by local parliaments would be candidates of he Red-White opposition group [KMP].

Investors also fared that Indonesia would constantly be shaken by political instability and legal uncertainty. Indirect election through local Parliament would be brought to court [MK] by the people. So the market would still see legal uncertainty.

Meanwhile elected President Jokowi underscored that Parliament’s decision to return electoral right to Parliament was a back step. Jokowi called out the people to watch political party robbed people’s political right to elect.

Jokowi since the beginning rejected Pilkada Indirect election through Parliament. The reason was because the election process was not transparent and the leadership quality of the election was questionable.

In that case Rupiah would be suppressed to around Rp. 11,975 – Rp. 12.075 per USD during closing session last week end [26/9]. If BI made intervention, most probably Rupiah would be in the range of Rp. 11.900 – Rp. 12,000 per USD. a development as such might still continue this week. Rupiah would be still under pressure in the range of Rp. 12,000 – Rp. 12,125 per USD due to negative political sentiment.

Rupiah value might be held back if the Government was successful in releasing new promissory notes. As known, the Government planned to release bonds in Rupiah denomination known as ORI this October to cover up budget deficit this year at targeted value of Rp. 20 trillion.

IPO would be run 1-20 October with listing at BEI on October 23. So far sales of bond was exercised to cover up swelling budget deficit which was predicted to be 2.4% of GDP this year. ORI tenure was 3 years with coupon set for September 29.

Unlike investors from banks and insurance companies, individual investors were permitted to buy packages smaller than bonds. An individual investors allowed to make an offering of at least Rp. 5 millions but were not allowed to make offering more than Rp. 3 billion, by Regulation of the Ministry of Finance. The Government had appointed a number of banks including Citibank, Bank OCBC NISP and Bank Mandiri as sales agents of ORI.

It was noteworthy that Rupiah value at Rp. 11,600 – Rp. 11,900 per USD as ideal level for good trading performance. At that level Rupiah was believed to be able to increase export and reduce import. Undervalued currency was not always bad, and strong currency value had its disvantages.

A country having deficit in current transaction and trade balance needed to put brakes on import. Recent weakening of Rupiah was more caused by the Fed’s plan to increase US benchmark rate in Q II or III 2015 which made investors all over the world to reposition their portofolio.

Countries having homework to do to restore their macro economic condition – including Indonesia, were having currency exchange rate problems while countries which had overcome the problem would undergo pressures of lesser degree. The only thing was that statement of BI official about Rupiah comfortable level was criticized by market analysts. BI official stated that Rupiah value at certain level would make exporters reluctant to sell their Rupiah. They were afraid that in case they needed USD they might find it hard to obtain them.

The Capital Market

During trading on afternoon session last weekend [26/9] index of IHSG was corrected deeply as selling spree by foreign investors heigthened. Premium share were subject to selling spree. To open trading in morning session IHSG dropped by 58.347 points –[1.50%] to the level of 5,123.142 was dragged down by negative sentiment from the global and regional market. Investors released high risk assets.

Passing of the Bill on Pilkada Indirect Election by Parliament brought negative impact. Blue chip shares were released by investors, pushing IHSG further down. During closing of session I [26/9] IHSG fell by 84.465 points [1.62%] to the level of 5,116.914. Meanwhile index of LQ 45 sank by 17.444 points [1.97%] to the level of 866.966 all sectoral index at the stock hall were undergoing cortection. The deepest correction was on the mining and financial sectors.

Meanwhile most of the shares in Asia weakened except one: the China stockmarket which inched up. Index of Nikkei 225 fell by 116.40 points [1.02%] to the level of 16.207.74. index of Hang Seng dropped by 109,16 points to the level of 23,658.97. index of Composite Shanghai inched up by 0.77 points [0.03%] to the level of 2,345.88 Index of Straits Times inched down by 2.82 points [0.09%] to the level of 3,288.17.

Foreign investors responded negatively to the Bill of Pilkada Indirect Election just passed by House. They made net sell of Rp800 billion at the regular market. The figure moved up constantly since opening session. In the past month foreign net sell totaled Rp2.1 trillion, the rest was a at the stock hall amounting to Rp51 trillion since early year based on BEI record.

Investors were dissapointed with Parliament’s decision to pass the Bill on Pilkada Indirect Election. President Jokowi would find difficulty to pass oin his agenda to the Provincial Government as the officials of the regions would be from the Red-and-white coalition.

Passing of the Pilkada Bill on Indirect Election was total victory for the KMP who supporter of Prabowo-Hatta candidate in last election. The KMP coalition group rated that indirect election would minimize corruption and regional budget. The result was that 242 governors and provincial leaders be appointed by the local Parliament which consisted mostly of KMP members.

Broadly speaking IHSG had been fluctuative sometimes index soared high but prediably sink deep again when positive and negative news faded away.

On a time like this marketplayers tend to look at fundamental economy instead of just the sentiments, particularly in case of blue chip shares. Sentiments, positive negative, must not overrule the underlying fundamental of shares. There were some shares worth observing, i.e. BBCA, TLKM, BBRI, PGAS, and GGRM which rose by 4.6% and KBLF shares.

Capitalized shares would be on the frontier line to serve as jack up for indices. Besides, the shares were sensitive to market development, Today investors were trying to find a way to justify market valuation which were relatively higher than historic average. It happened to small shares of high volatility.

Apperantly IHSG was predicted to move flat with tendency to weaken in the range of 5,075 – 5,125 last week end [26.9]. IHSG would still be under pressure over the week in the range of 5,000 – 5,100 if there was no positive sentiment to the local stockmarket. Investiers were reluctant to invest their capital too long at the local stockmarket as they were depressed by political dynamics and legal uncertainty. (SS)  

Business New - October 1, 2014

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