Monday, 29 June 2015


The international Rating Agency Standard & Poor’s (S&P) revised Indonesia’s outlook rating on Thursday May 21, 2015 from Stable to Positive Outlook and at the same time confirmed rating at BB+. Better outlook means possibility for Indonesia to obtain upward rating in the next 12 months.

The main factor for Indonesia that enable Indonesia to have better outlook was betterment in policy framework which had enhanced credibility of monetary policy had strengthened fiscal and forex reserves and strengthen national economic resistance.

Betterment of S&P outlook was as predicted and Indonesia’s next target was to have rating promotion to investment Grade by S&P. Today S&P was the only rating agency which had not placed Indonesia at investment Grade position.

Outlook rating by S&P was acknowledgement of Indonesia’s economic resilience as result of integrated policy by the Government, in spite of pressures from the internal and external. Rating by S&P reflected bettered international optimism of Indonesia’s economic prospect.

To be specific, S&P stated there was possibility of increased rating for Indonesia in the next 12 months, provided better quality of Government’s expenditure could be attained, including consistency of oil pricing policy to be adjusted to market price and more efficient budgeting by the Government.

For information, 3 leading rating agencies only S&P had not given the status of investment Grade to Indonesia. In their statement, S&P stressed that the BB+ rating for Indonesia was equal to rating given to Russia and Hungary. Had improved fiscal and buffer zone for forex reserve, which strengthened national external defenses.

Indonesia’s prospective state enhanced chances for Indonesia to step up rating in the next 12 months provided the Government attained other progress in improving expenditure quality. The main positive factor which influenced S&P rating was President Joko Widodo’s statement to axe fuel subsidy last year and promised use hat save fund for infra structure building.

S&P would review Indonesia’s State Budget to be proposed by the Government in October; not only to evaluate Government’s commitment to suppress fiscal deficit but also to see their attention to the public business sector in the broadest sense. This might revise the Stable outlook if Government’s zest for information dims out or macro imbalance worsened.

According the Minister of Finance Bambang S. Brodjonegoro stated that tolerance limit for deficit swelling in APBN for this year was 2.2%. Minister Bambang claimed he was optimistic to be able to keep fiscal deficit within 1.9% against GDP.

Budget deficit would be safeguarded without reducing financing. Shortage of fund needed not always be overcome by releasing SUN Promissory Notes, it could be covered by multilateral loan or loan program like that from Asian Development Bank or World Bank amounting to around USD 1.1 – 1,2 billion.

Even if deficit of State Budget had to widen, loan could be used for covering up. In APBN-P 2015, the Government set target for deficit amounting at Rp.222.5 trillion or 1.9% against GDP. State’s income was set at Rp.1,76.6 trillion and State’s expenditure set at Rp.1,984.1 trillion.

By May 15, 2015 deficit in budgeting came to Rp.64.3 trillion or 0.55% against GDP. In that period, state’s income to Rp.476.3 trillion or around 27% of APBN-P target and State’s expenditure was Rp.540,5 trillion or 27% of APBN-P 2015.

BI also posted Indonesia’s Balance of Payment in Q-1/2015 as having surplus of USD 1.3 billion or lower than the surplus of the previous quarter at USD 2.4 billion. The surplus was thanks to deficit in current transaction which was lower, i.e. USD 3.8 billion or 1.8% against GDP and also capital and financial transaction.

Deficit was posting downturn compared to Q IV/2014 which came to USD 6.2 billon or 2.81 of GDP. Compared to Q 1/2014 deficit also slumped when it was posted at USD 4.1 billion or 1.9% of GDP. Restoration of Deficit in current transaction due to less costly oil importing.

Downturn of world’s oil and reduction of oil price subsidy at home helped to improve oil gas trade balance. Deficit in oil-gas Trade balance in Q 1.2015 dropped by 55% compared to previous quarter or same period before. Lessened deficit was mainly because import of oil was less by 40% against previous quarter, or even minus 47%. Beside price of imported oil which was deeply corrected, less oil import was due to reduced volume of oil import in parallel with oil consumption which grew negatively, annually or quarterly.

BI rated that deficit in the next quarter tend to keep improving with reduced volume of oil importing and less oil consumption. Reduced subsidy for oil brought positive impact on narrowing down of deficit.

The Moneymarket

Rupiah value at inter-bank transaction in Jakarta on Friday morning (22/5) weakened by 36 points to become Rp.13,141 against the previous position at Rp.13,105 per USD. As there was no sign of Government’s good performance in the relaxation of income and expenditure kept expectation of economic growth low.

Expectation of domestic economic growth would keep appeal of Rupiah based asset low. Sentiment from S&P which revised Indonesia’s debt level from stable to positive was also relatively minimum. However the US manufacturing figure being announced to drop had the potential to downpress USD at the global market. US market Manufacturing index (PMI) dropped to 53.8 in May from 54.1 in April this year.

Other sentiment was that marketplayers were waiting announcement to be made by the Central Bank of Japan (BoJ) on Japan’s target for monetary policy. Furthermore marketplayers were also waiting for US inflation figure which was predictably still at negative zone. So global sentiment was still the main factor which suppress Rupiah value down against USD.

Some marketplayers were waiting for statement of Janet Yellen on the prospect of US economy at last week end, from which further signals was expected on timing of FFR increase. While waiting Rupiah volatibility would remain high as there was no certainty of FFR increase, so market players tend to stay at safe haven such as USD.

Apparently Rupiah value at the New York money market last Friday (22/5) was closed to inch down against other leading currencies the market rated that America’s macro economy was a whole unimpressive. Annual sales data of NAR which totaled all the houses sold in America dropped by 3.3% to 5.040 million units on April against 5,120 million units the month before.
Meanwhile index of PMI Manager of Market version sank from 54.1 on April to become 53.8 this month of may, the weakest since early 2014. Investors were waiting for Janet Yellen’s statement on US economy prospect to get further guidance for the right timing for FFR increase. Index of Green buck inched down by 0.20% to become 95.261.

During transaction on Thursday (21/5) Rupiah value against USD managed to strengthen to Rupiah value against USD managed to strengthen to Rp.13,123 against previous closing session at Rp.13,175. BI mid-rate was Rp.13,150, better than the previous Rp.13,169. Previously Rupiah was being tested of its strength during trading session on Thursday (21/5) when increased USD index obstacle Rupiah potentials for the short term, but was able to uplift Rupiah for the mid term.

As predicted, minutes of FOMC meeting showed that the Fed was reluctant to increase FFR this June. The Fed also stated that FFR increase would only happen by planning based on the directives given from meeting to meeting; but USD index surprisingly strengthened in response to the comment while return of US treasury of 10 years tenure dropped.

The Fed’s statement which showed they were more reluctant to increase FFR in June had the chance to prevent weakening of USD especially in the emerging markets. Rupiah had the chance to strengthen last week end (22/55) in the range of Rp.13,075 – Rp.1,125 per USD amidst Indonesia’s adverse overseas debt position.

Indonesia’s position of overseas debt in Q 1/2015 came to USD 298,1 billion, slightly up against Q IV/2014 which was USD 192.6 billion. However, to look at the growth platform, Indonesia’s overseas debt had been growing slow, i.e. 7.6% y o y compared to Q IV/2014 at 10.2% (y o y). BI saw that development of ULN in Q 1 was in line with domestic growth which slowed down. Indonesia’s overseas debt (ULN) consisted of ULN of the public sector amounting to USD 132.8 billion (44.5%) and ULN of the private sector amounting to USD 165.3 billion (55.5%). In terms of time frame, Indonesia’s ULN position was dominated by long term debt (85.3%).

Long term ULN debt in Q-1/2015 grew by 8.9% (y o y), slower than growth of the previous quarter at 10.4% (y o y) meanwhile ULN of the short term grew by 03% (y o y), also slower compared to growth of the previous quarter at 9% (y o y).

BI must constantly monitor ULN development especially ULN of the private sector, so ULN could serve its purpose to the maximum in supporting development financing without risk of destabilizing economy. BI’s effort was right when foreign capital were flowing out of the country. Over the past week alone, foreign capital that flowed out of the stockmarket came to Rp.1.45 trillion.

Somehow the capital outflow was not significant when compared to foreign capital outflow of the hot money category which had entered the moneymarket in Indonesia over the year the year. BI data had it that in Q 1/2015 the flow of hot money to the portofolio market had come to USD 8.4 billion bigger than that of Q IV/2014 which was only USD 62 million.

The storm of hot money was triggered b release of SUN Promissory Notes. Beside SUN, foreign investors also invest their capital in Indonesia’s stockmarket. Early this year the Government there front loading of SUN. The objective was to make the best of global market opportunity. In April 14 last, realization of SUN came to Rp.191,44 trillion or 42.37% of target.

On the one hand the heavy inflow of foreign capital showed that investment climate in Indonesia was still attractive. On the other hand, the Government must be cautious because the hot money could whiz out any minute. This made Rupiah shock sensitive. Moreover, Indonesia’s fundamental economy was still shaky as seen the widening deficit.

Some analyst saw that pressures on Rupiah was still continuing in Q-2/2015 as demand for USD increased. Normally Q-2 was the time for dividend. Meaning many fund would flow out Indonesia. To anticipate it, Government accelerate must accelerate liquidation of fund for projects and create better investment climate. Hence foreign investment could be invested in direct investment to minimize dependency on portfolio investment.

It was important for the Government to diversity export market and the type of commodities exported so as not to be over dependent on commodities. In the end export would strengthen national forex reserves and energize Rupiah. Indonesia’s elevated rating by S&P should invigorate investment activities and might jack up Rupiah position to the level of Rp.12,950 – Rp.13,000 per USD this week.

The capital Market

Index of IHSG rose by 6 points to continue strengthening yesterday. Indonesia’s economic outlook rose from stable to positive was driving force. During pre-opening trading (22.5) IHSG inched up by 6,757 points (0.13%) to the level of 5,19.965 while index of LQ 45 inched up by 1.717 points to the level of 929,110. Premium shares were the target of buying spree, moreover foreign investors were again hunting shares.

During transaction on Thursday (21.5) rose by 20 points in response to bettered outlook of Indonesia’s economy from stable to positive by Standard & Poors.

IHSG rose by 20 points (0.4%) to the position of 5,313.21 points during closing session after S&P 500 announced Indonesia’s rating promotion from stable to positive which opened the chance for Indonesia to attain Investment Grade rating in next 12 months. Index of LQ 45 strengthened by +0.67% to 928. Jakarta Islamic Index (JII) weakened by -0.24% to the position of 713. Total transaction was Rp.7,522 trillion. Trade volume 5.805 billion shares. Foreign investors were in the position of Net Buy totaling +Rp.308 billion.

Wall Street indeed was also closed positive during transaction on Thursday. Unsatisfactory US economic data created expectations that FFR would not be increased early this year. Last week end (22/5) Asian stockmarkets were mostly open positive following Wall street trends. Index of Dow Jones Industrial average tend to move flat (up by 0,34 points) to the level of (4.97 points) to 2,130.82. Nasdaq Composite inched up by 19.05 points (0.38%) to the level of 5,090.79.

So wall street ended up positive as indicated by index of certain premium shares which rose to their highet level. Index upturn was held back by some indicators of US economy which was unsatisfactory beyond public expectation. Data of mortgage sales for April dropped by 3.3% but was still below the expected increase of 1%. Released index of PMI Manager Market for May came to 53.8 but was still below the expected 54.5.

Data of unemployment claim of last week came to 274,000, higher than the expected 271,000 and up against previous week at 264,000. On the other hand America’s important indicator index for April of Conference Board version which predicted economic activities of the future, showed increase of 0.7%. Analysts rated that as a whole US economic data was still not supportive to FFR increase.

Only Japan’s stockmarket inched down. Index of Nikkei 225 weakened by 38.46 points (0.19%) to the level of 20,164.41 index of Hang Seng rose by 189.29 points (0.69%) to the level of 27,7013,01. Index of Stratits Times inched up by 8.81 points (0.26%) to the level of 3,448.67

This week index of Nikkei stood a chance to strengthen following release of Japan’s manufacturing data that showed manufacturing companies in Japan were again expanding their production output. Markit Flash Japan Manufacturing PMI was at level 50.9 in May. The index above 5 indicated that Japan’s industry was expanding after shrunk to 49.9 through April.

Meanwhile movement of indices at the Europe stockmarket ended transactions with slight increase of index of some leading shares. Index movement was influenced by release of Manager Purchas Composite (PMI) of euro zone for Mark it version of May at 53.4 which indicated that economic expansion was still low compared to previous month at 53.9 lower than 53.9 the previous month.

However data also showed there had been increased staffing at impressive speed, the fastest in 4 years. Index was also uplifted by release of meeting outcome of ECB which confirmed “full implementation” of quantitative easing to help restore economy in Europe. Index of FTSE 100 London inched up by DAX 30 Frankfurt strengthened by 6.12 points (0.12%) to the level of 11,864.59. index of CAC 40 Paris inched up by 13,40 points (0.26%) to the level of 5,164.70.

Last Thursday (21/5) index of South Korea stockmarket was corrected as economic growth index was axed. Index of KOSPI inched down by 0.78% to the level of 2,122.81 index continued to be under pressure in the range of 2,121.49 – 2,140.60 since inching up by 0.01% to the level of 2,139.68 at opening session. Of 753 shares listed in South Korea 285 shares strengthened, 413 shares weakened and 55 shares stagnated. Weakening of index ended strengthening process since early last week with accumulative increase of 1.56%.

Korea Development Institute revised down South Korea’s economic growth projection from 3.5% to 3%. The institution also stated economy could grow less unless there was extra support from Monetary and Fiscal policy. Projection of the influential think tank body in Korea triggered speculations Bank of Korea would lower benchmark rate in the near future.

Last week (22/5) IGHSG strengthened to the level of 5,325 – 5,350 being motivated by growing optimism of marketplayers after rating announcement by S&P. For this week, IHSG stood a chance to continue strengthening to the level of 5,325 – 5,375 supported by relaxation of policy by BI and BI rate being kept at 7.5%

Meeting of BI Board of Governors on May 19, 2015 decided to maintain BI rate at 7.50% with Deposit Facility interest of 5.50% and Lending Facility at 8.00%. The decision was in line with the stance of BI monetary policy which tend to be tight to keep inflation in the range of 4 + 1% in 2015 and 2016 and to narrow down deficit to healthier level around 2.5% - 3% GDP in mid term.

To maintain the momentum of economic growth, BI had relaxed macro-prudential policy through revision of GWM-LDR, LTV rules for KPR mortgage and rules for down payment for Automotive Credit plan.

BI also supported Government’s effort to accelerate realization of infra-structure projects and carry on with the structural policy to enhance optimism of economic players about economic recovery in Indonesia. In the future realization of Government expenditure to execute infra-structure projects was the determinant factor of economic growth enhancement in 2015.

BI had their commitment to maintain stability of rupiah in accordance with the fundamental economy whereby to support macro economic stability through re alignment of strategies toward a healthy and sustainable growth as catalysts to stockplayers.

One thing was sure BI’s policy which would soon revise GWM-LDR and to coordinate with OJK in revising stipulations of LTV for KPR mortgage, and rules for down-payment of KKB injected new stimulus to national banking industry. So shares of the banking sector, construction, property, cement, steel and other buildings materials should be prima donna sector in the eyes of investors. (SS)

Business News - May 27, 2015

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