Monday, 6 April 2015


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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