Domestic global sentiments
would still govern Rupiah and IHSG over the week. The domestic factor was macro
economy and the external factor was the plan to increase Fed Fund Rate by the
Fed.
Variable balancing of macro
economy needed by prioritized in the short run to ensure sustainable economic
growth in the log run. It was not advisable to spur on economic growth to high
in the long run so inflation and deficit in current transaction could be
controlled. Economic growth of 2015 and 2016 was led to a moderate level.
Balancing of economic
variables of the short run needed be prioritized because Indonesia was still
dependent on import. Data of Indonesia’s or auxiliary goods totaled around
76.28% of total import of January 2015. Import of capital goods came to USD 2.2
billion of 17.48% of total import of the same period.
To spur on economic growth,
Indonesia needed raw materials and capital goods for the industry. If import
needed for developing economy increased, deficit in trade balance could
increase and such would worsen Rupiah weakening. Increasing growth would also
jack up inflation.
In the short run, deficit
might still expand as long as supply from the internal was still low. To
accelerate development of domestic raw material industry was indispensable and
urgent whereby to increase supply. BI’s policy mix was designed to secure
Indonesia’s fundamental economy. Stability of the monetary system was needed to
make sure that long term investment kept flowing in.
Although credit growth 2015
was predictably better than 2014, BI was optimistic inflation could be
maintained in the range of 3% - 5%. Beside lowering benchmark rate from 7.75%
to 7.5% on February 17 last, BI also lowered Deposit Facility from 5.75% to
5.5% - this initial step was a signal that BI was in favor of liquidity easing.
Lowering of BI Rate on
February last was beyond the expectation of most economists that BI Rate would
remain unchanged. However it was believed that the BI Rate of 7.5% was line
with the effort to narrow down deficit to a safer level. Deficit by end of 2015
was estimated at 3% - 3.1% of GDP which was wider than that of 2014 at around
2.0% of GDP. However, as long as deficit was due to productive spending it was
regarded as still permissible.
On the external side the
market predicted that increase from the emerging markets, but that was not what
happened. There was unexpected investors to place fund of nearly USD 14.4
billion in Government Promissory Notes in India, Indonesia and South Korea.
Capital inflow also axed
the average value of bonds of Asia’s emerging markets by 21 basic points to
become 4.20%, lower than the average yields of state’s bonds mostly 4.72%,
falling oil price was supportive to recovery process in developing countries,
although there was fading trust in Latin America due to political and corporate
scandal in Brazil and Argentine.
Crisis in Ukraina also
triggered exodus of run from Middle Europe, Africa and Latin America Asia was
more free of political uncertainty. Global investors still saw the positive
performance of Asian bonds.
Index of Bloomberg showed
Asia’s bonds in local currency was positive 2.3% this year; led by increase of
8.4% in Indonesia and 2.6% profit in China. Bonds in Latin America lost 0.4%
and in Europe, the Middle East and Africa dropped by 0.8%.
Data of EPFR Global showed
that by February 20 last, Asian bonds managed to draw fund of USD 1.1 billion
this year, in contract with capital flight of USD 654 million over the same
period last year. Latin America collected fund of USD 44 million while in
Europe, the Middle East and Africa the amount collected was USD 48 million.
Contract at the Security
Exchange indicated there was 59.5 probability that the Fed would increase
before end October, higher than end of January last which was only 46.5%. The Fed’s
effect should diminish at least in the short run. Asia was some sort of safe
haven among developing countries. The emerging Market was as a whole not doing
well. In case of Latin America NPL level would increase as most of the bonds
were energy-based while some company were being investigated for corruption
allegations.
Broadly speaking investment
climate in 2015 was predictably good. Return from shares and bonds were
believed to better than investment products in banks. The condition of high BI
rate was over. Analysts saw there was potential of further reduction of interest
due to low inflation and even deflation.
BI Rate dropped would have
positive impact on investors planning to buy shares and bonds. In the end the
stockmarket would strengthen due to higher inflow and growth of organic profit.
The bond market still had room for betterment due to potential of further
interest downturn.
Downturn of BI Rate and oil
price which had the potential to jack up purchasing power would affect
consumers’ demand. Market optimism which predicted average profit to grow by
12% by early year was believed to bring better investment climate; but with
some factors like increasing demand and bettered cost was very likely to grow
higher.
The Moneymarket
USD value soared high
against world currencies (5/3) which was the focus of attention of President
Joko Widodo. In a cabinet meeting, President Jokowi gave his directives on
managing inflation. The main component of inflation was price rice and Rupiah
value. The President had asked the related ministers to watch on Rupiah
fluctuation.
Understandable because USD
broke through its highest level at Rp.13,025. The position lasted nearly all
day until closing session. Finally USD was closed at Rp.12,985 not too high
against the previous position of Rp.12,971. The position was lowest since July
1998 when monetary crisis came.
The fact was that USD was
getting mightier against some of the world’s leading currencies. Marketplayers
were still waiting for some announcement of US economic data to take position.
According to Bloomberg data (5/3) the EUR/USD pair inched down by 0.29% against
the previous day to become 1.046.
The AUD/USD pair inched
down by 0.12% to 0.7808 while USD/JPY rose by 0.37% to 120,1200 EUR/USD
weakened toward ECB press conference. President of ECB Mario Dragi would
announce monetary stimulus. Besides euro was also downpressed by bad economic
data of the Euro zone like PMI of Spain and Italy. In fundamental terms, it was
impossible that Euro could outpower USD.
Curveline of AUD/USD was
flat. Sales data of retail sales in Australia in January grew by 0.4% time
sentiment from China who projected economic growth this year at 7%, lower than
the previous projection of 7.5%.
As one of China’s main
trading partner, Aussie was weakened meanwhile the faith of USD was determined
by non-farm payroll data. If the outcome was projective it would inject extra
energy for USD. USD/JPY was consolidation as the US nonfarm payroll data. The
market was waiting for a new catalyst.
Rupiah depreciation to as
low as Rp.13,000 was due to mounting external sentiment, i.e. the USD. Index of
USD moved in the range of around 95.50, the highest level in the last 10 years.
The latest rumor in the
market was that increase of Fed Fund Rate would executed in the near future,
sooner than predicted. The strongest drive for America to increase interest
came from Europe because of tug-of-war between Europe and America to draw
investors.
The USA feared the possible
vast magnitude of capital flow to enter the Europe equity market when economy
package was launched regularly by Europe. Last week ECB legalized stimulus fund
of euro 1 trillion for a period of one year. When the impact of stimulus fund
evidently scarred America, then America would increase their interest rate.
There was no resistance in
Indonesia, to consider that SUN State Promissory Note was not much in demand.
The Rupiah factor made things worse. Rupiah state of helplessness continued
until closing session of last week at the position of last week at the position
of Rp.12,940 – Rp.13,020 per USD.
Over the week, taking the
internal and external factors intro consideration, Rupiah might move in the
range of support Rp.12,900 and resistance Rp.13,000 per USD. Governor of BI
Agus Martowardjo stated there was no need to worry about weakening of Rupiah to
Rp.13,000 per USD.
Rupiah weakening was on
account of dynamic situation abroad. Generally speaking Rupiah was in notably
good shape, and BI would always be there to safeguard the volatility and risk
level. Rupiah weakening had been predicted by BI and would not last long.
Apparently rupiah reflected national economic condition. For information,
through 2014 volatility level of Rupiah was below 10%, a level better than that
in other countries.
BI rated that the condition
was due to risk on and risk of happening in the world which directly affected
Rupiah value. The global factor, especially the case of bail out for Greece by
Finance Ministers of the euro zone was regarded as positive factor.
In the future there would
be further depreciation as USD would strengthen and US economy undergoing
recovery. There would even be sizable buying of dollars for various needs. It
was noteworthy that rupiah depreciation against USD was not as severe as other
Currencies like Won and ¥en.
Rupiah appreciation against
USD was part of the dynamics of economy. BI saw that Rupiah value today
reflected Indonesia’s fundamental economy. BI was ready to make intervention
whenever necessary so the public should not panick. BI believed that structural
reformation and financial stabilization were the key solution factors.
Indonesia’s economy was
still dependent import of raw materials, auxiliary goods and capital goods to
keep development running; the advisable solution was structural reformation
through reformation in logistics, fiscal, bureaucracy and human resources
development.
Some variables governed BI
policy were among others the inflation factor, economic growth, balance of
payment and the financial situation. So although Rupiah value tend to weaken
against USD, BI rated that Indonesia’s economy was still safe and sound.
As long as Rupiah weakening
was compensated by sound national economy, anxiety was not necessary. Moreover
BI saw that Indonesia’s economy was still dependent on real or portfolio
foreign investment (PMA).
As a country relying on
foreign investment, it was imperative for Indonesia to maintain macro stability.
National economy must be maintained well whereby to keep deficit at safe level.
Not less important was that foreign investors must be attracted with appealing
incentives.
In fact pressures on Rupiah
could be reduced if latest data of US economy was considered. Apparently US
economy was growing slower than expected in quarter 4 of 2014 on account of
measly increase in reserves and high growing import.
The US Department of Trade
stated that America’s GDP grew by 2.2% in last quarter of previous year,
correcting the previous estimate of 2.6%, lowered GDP expansion was slightly
better than the increase expectation of 2.1% after strengthening by 5.0%.
The latest economic data
had it that moderate growth in 4th quarter mainly indicated less
growth percentage and higher import which reduced GDP. Although downturn of
energy price could jack up consumer’s spending, weakening of global economy and
strengthening of USD had burdened State’s Budget. Export only rose by 3.2% in 4th
quarter after increasing by 4.5% in quarter three and soaring up by 11.1% in
second quarter.
Consumer’s expenditure
which contributed around 70% of US economic activities was the main propeller
of growth, increasing by 4.2% in 4 years. Expenditure contributed around 2.8%
against growth of quarter four, the highest position for almost 10 years.
The Capital Market
IHSG during early session
last Friday (6/3) advanced to the green zone. IHSG was opened to increase by
16.2% to the position of 5,467.15 constantly increasing by 20.8 points (0.38%)
to the position of 5,471.75. Index 45 blue chips, i.e. LQ 45 inched up by 0.5%
to become 951.34
103 shares were seen to
increase, 48 shares went down and 77 shares stagnated. Total transaction value
came to Rp.890.66 billion with 724.62 million lots. Nearly all sectors were in
the green zone of which 9 sectors were green. Three sectors posting highest
increase were among others infra-structure, finance 0.53% and other industries
0.53%, meanwhile the property sector inched down by 0.18%
Technically IHSG was
projected to be varied with chances of profit taking in the range of 5,430 –
5,475 during closing section last week (6/3). The consideration was that the
level at closing session the day before was followed by increase of volume.
Over the week IHSG might move in the range of 5.450 – 5,500 because foreign
fund kept flowing in as Indonesia was one of estimation countries for
portofolio investors.
Index of Asia’s stockmarket
data showed that index of MSCI Asia Pacific increased by 0.1% to become 145.18.
However, over the week last week benchmark index of the region was suppressed
by 0.7% while index of Topix Japan inched up by 0.2% as Yen was transacted at
120.07 per USD. Meanwhile index of KOSPI South Korea rose by 0.3%, index of
S&P/ASX 200 Australia down by 0.3% and New Zealand inched up by 0.4%.
One of the positive
sentiments that uplifted Asia’s stockmarket was investor’s tendency to wait for
US employment data which was schedule to be released today. By this data,
investors were seeking for clue about which way US monetary policy was headed
for. US employment data was determinant data. Recovery of labor market in
America was the influencing factor that would make The Fed to take dovish
action. Janet Yellen seemed reserved in making the last statement.
So US stockmarket was
strengthening. Dow Jones index inched up by 0.15% to become 18,126.27. Standard
& Poor’s index inched up by 0.1% to become 2,100.68. Strengthening of US
stockmarket happened as companies and investors knew in detail stimulus policy
by buying to be done by ECB.
With that certainty, shares
of some companies were posting increase. Among others Pharmacyclics Inc which
rose by 11% after AbbVie announced their plan to buy shares worth USD 21
billion. Meanwhile shares of Mallinckrodt Plc increased by 4.4% after buying
shares of Ikaria Inc worth USD 2.3 billion.
All European countries
widely acclaimed the quantitative easing done by ECB. This policy would promote
economy for a few years ahead. ECB President Mario Dragi had announced first
buying of European bonds. The step was meant to stimulate Europe’ economy to
fight deflation. As planned ECB would start buying assets by next week at the
price of Euro 60 billion per month whereby ECB would start inflation at below
2%.
Back to the domestic
stockmarket, weakening of Rupiah to the level of close to Rp13,000 generated
pressure, especially to the automotive industry. The association of Indonesian
Motorcyle Industry (AISI) rated that weakening of Rupiah happening today was
feared to correct performance of the automotive sector, due to lessened
people’s purchasing power.
If Rupiah depreciation continued, inflation
would soar up, which would lower people’s purchasing power. In that case, sales
of motorcycles would also drop. Businesspeople were expecting Rupiah value
would gradually improve. Businesspeople appreciated BI’s act to lower value
would be stable and inflation would be under control.
Sales of two wheel vehicles through 2014
last increased by 1.67% against 2013. Data of AISI had it that last year sales
of motorcycle was only 7.9 million units, a slight increase against sales of
2013 at 7.77 million units. Of that 7.9 million units Matic Motors constituted
67.34% or 5.32 million units. Meanwhile sales of Duck cycles was posted at 1.48
units or 18.73% of total sales 2014. Sales of Sports motor cycles was posted at
1.1 million units of 13.9% of total sales.
At the property sector, the number of
speculator dropped; it happened when BI issued the first and second Loan to Value
(LTV) regulation for KPR Mortagage. Outcome of examination by BI and OJK on
banks had it that speculations on property was diminishing. However, price of
house kept soaring high.
Apparently LTV Regulations was not running
well because price of House was still skyrocketing with chain effect on other
types of houses. In the end, it was still hard for people to buy houses.
The latest evaluation on December 2014
showed that price of house was still high. Meaning the LTV policy had succeeded
in keeping credit for luxurious houses from being too high. Apparently it had
failed to control prices. The LTV policy was not effective to control
increasing price, but could evidently put brakes on credit. Probably other
instruments was needed like tax.
Under the present circumstances additional
regulation on LTV policy seemed right because the Government was striving to
increase income from tax. Evaluation by BI and OJK on quarterly LTV IV-2014
was: index of residential property in Q IV 2014 increased by 1.54% quarterly,
while annual index was having slowdown of 6.29%.
Increase of prices would probably still
happen in quarter I-2015 with slower increase. By type of house, highest price
increase was in big type of homes, i.e. 1.68% on three monthly basis. (SS)
Business News - March 11, 2015
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