A LITTLE CONSOLATION FOR THE MARKET

Continual downsliding of Rupiah value and IHSG was starting to give the creep. Not just the chain effect that could generate everywhere but speculations were appearing here and there over the week.

Marketplayers panicked and clearing sales seemed to prevail the stock hall. The result: IHSG index sank to below the 5,000 level. Now IHSG was at lowest level in the past 12 months since July 3, 2014 while Rupiah value was also critical.

Data of JISDOR last week showed that Rupiah again slipped back to the level of Rp.13,365 per USD. Since early this year, Rupiah had fallen by forex reserves. BI noted that Indonesia’s forex reserve position by end of May 2015 was USD 110.8 billion, lower that that of April 2015 at USD 110.9 billion. This was the side of Rupiah stabilization effort.

Unfortunately Rupiah remained to lay flat on the ground in general. Now portfolio investment risk had increased. Such was seen in Credit Default Swap (CDS) for bonds of 10 tear tenure which rose from 239 to 256.5. It was not surprising that the SUN Promissory Notes kept sinking. The consequence was yield on SUN last week rose to 8.76. The highest level since 2014.

External factor accounted for slump of Rupiah and IHSG. The Fed’s plan to increase FFR and the crisis in June were the triggers of world’s economic turbulence, Indonesia being no expectation.

Rupiah position was today quite alarming, having fallen by 7.11% since early year. If Rupiah weakening came to 10% in a year, Indonesia could be rated as having entered the phase of monetary crisis. At present Rupiah might be rated as being on the verge of crisis.

Beside external pressures national fundamental economy was just as disheartening. Trade fundamental economy was just as disheartening. Trade balance and Balance of Current Account was not showing any improvement. Besides, market trust in the Government was fading as the Government was still poorly coordinated in facing the present economic turbulence.

BI had taken measures to relax Rupiah turbulence. Since last week BI had made market intervention by buying SBN Promissory Notes. The Government today it was hard to reform national economy for the short term. What could be done today was to improve Government’s performance by enhancing budget absorption batter.

For the short term it was advisable for BI to cool off market temperature, because a panicked situation could be used by speculators to taken advantage and that would be troublesome. It was noteworthy that the World Bank had axed global economic growth on Wednesday (10/6) last. The World Bank reminded economy of developed countries were hurricane stricken, from low commodities to high cost of credit.

Based on Global Economic Prospect (GEP) the World Bank predicted the world’s economy to grow by only 2.8% in 2015. The prediction was a slump against that of last January when the world’s economy growth was 3%. The World Bank maintained growth predictions for 2016 and 2017 at 3.3% and 3.2% respectively.

Economy of the developed countries was the global economic machine in time of financial crisis. However, by the time they have to face more difficult economic circumstances, the World Bank also lowered economic prediction of developed countries for 2015 and 2016 to 4.4% and 5.2% respectively against the previous 6.3%.

One of the reasons was low price of oil and other commodities which triggered economic slowdown in some developed countries highly reliant on export. Not just that, economy of the emerging market would have to face hard times in line with weakening of their currencies. The condition is made worse by appreciated USD due to increase of FFR by the Fed.

The World Bank noted that depreciation of currencies was big problem to developed countries whose economy was commodity based. What made things worse when employment data in the USA was on the upturn through May in line with wages increase which strengthened probability of the Fed in September.

The US Labor Dept. noted that increased number of workers as shown in data of non farm payroll increased to 280,000 Workers last month. The attainment was highest since December 2014. Meanwhile unemployment level increased by 5.5% against 5.4% in April.

The growth was triggered by emerging generation of job seekers and university graduates. Report of payroll data showed that America’s economy was getting better.

The report complemented data of car sales and manufacturing in May which signaled economic betterment in the post-contraction Era of Q 1/2015. The poor data of the first 3months of this year triggered probability of FFR increase by the Fed this year. More over data of GDP was also followed by consumer’s expenditure and industry production which slumped, indicating that US economy was still under pressure.

Analysts rated that the latest employment data eliminated all doubt. The financial market reacted with appreciation of USD. The value of Greenbuck against ¥en even strengthened to highest level in the past 13 years. On the other hand the average income per hour increase by 8 cents.

Meanwhile the US Department of Labor also revised data of increased number of workers through March and April which was higher by 32,000 people than the data released earlier. Marketplayers of the Futures Market reacted by forwarding expectations of increased bank interest which still estimated increase of December.

Investors saw 53% probability that the FED would increase their monetary dosage in October. On June 16-17 the Fed would conduct Federal Open Market Committee (FOMC) to discuss the FFR policy. Since 2008 the US monetary authority kept interest rate at near zero percent to improve economy. At the beginning the market was sure that normalized situation would mean benchmark rate would be increased in June 2015 but the projection kept delayed as US economic data worsened.

At home, BU as monetary authority kept monitoring Rupiah movement which was constantly depreciated since August 1999. BI would respond to every sentiment which governed Rupiah exchange rate value against USD.

Economists rated that Rupiah value was still in the process of depreciation. Therefore BI must put extra effort to stabilize Rupiah so pricing adjustments would not be excessive as it would jack up inflation. Weakening of Rupiah value would push inflation due to the imported inflation factor but also due to oil price factor. Cost of oil importing was quoted in USD and converted to Rupiah, and Indonesia was importer of oil.

The Moneymarket

Rupiah value at inter-bank transaction Jakarta last Thursday afternoon (11/6) strengthened by 25 points to become Rp.13,290 per USD against the previous at Rp.13,315. Rupiah was still in the state of technical rebound, hence the potential of Rupiah to slump once was still open.

Marketplayers were waiting for some data of the USA, among others retail sales of May and weekly jobless claim. If the two data were accepted as positive by the market, the potential for the USD to get stronger was high and might increase US benchmark rate.

On the other hand, marketplayers were watching the development of bailout for Greece. Long and dragging negotiation could bring negative effect on the moneymarket of developing countries.

At home, marketplayers were waiting for data or retail sales of May 2015. BI estimated real Sales index (IPR) of May 2015 was only 181.2, a growth of 20.8% (y o y) lower than the 22.4% (y o y) of April 2015.

Most marketplayers had high expectations that positive solution of Greece debt would bouy up some world’s currencies including Rupiah. However Rupiah strengthening would predictably be limited since the global moneymarket was still overshadowed by increase of FFR by the Fed.

Meanwhile in BI;s mid rate last Thursday (11/6) Rupiah strengthened to Rp.13,292 against the previous Rp.13,329. Previously USD value soared up as high as Rp.13,400 to be exact Rp.13,423. The highest USD level of all time was Rp.13,423. The highest USD level of all time was Rp.16.650 on June 17 1998 during the Asian monetary crisis. It was right indeed for BI to take sound measures to protect Rupiah.

Now BI would rely on short term strategy to prevent Rupiah from sinking any deeper. Rupiah was somehow under control as BI started to interfere. BI had released vast amount of USD to stabilize Rupiah since early last year.

BI did not only safeguard the moneymarket but also bought SBN promissory notes released by foreign investors. So far, foreign ownership over SBN had been lessing. The Ministry of Finance noted foreign ownership over SBN by last Monday (8/6) was Rp.513.17 trillion or down by 38.27%. the amount shrunk by Rp.2.66 trillion against transaction on Friday (5/6).

Buying of SBN was to ease pressures on Rupiah. Moreover, lately r.o.i of SBN was quite satisfactory. Market data had it that yield of Governments bond of 10 years tenure was posted at 8.71% last Monday (8/6) and inched down to 8.55 on Tuesday (9.6) Yield of last Monday was the highest since February 2014.

Increase of SBN yield has signaled danger; it would increase Government’s burden in managing bonds/ so far the Government had not decided to intervene, the Government had to not asked BUMN to buy SUN.

Behind all this BI reminded there was one other thing that called for alert: currency war. Such outburst could be real treat if FFR increase ran continually over the next 3 years. Rupiah would be a sitting duck if the happening turned to be a world’s phenomenon.

When currency war happened, every country would rush to weaken their currency against USD to jack up export. Under such circumstances, Rupiah might strengthen against currencies of some developed countries which means it was not good for national export. To keep the nation from currency war, BI must accelerate in-depth approach to the moneymarket.

After issuing 3 BI regulations on foreign currency, BI would adopt a new policy as an effort to speed up market intervention. Soon there would be another policy like Loan to Value (LTV) to maintain economic stability. Through one of their regulations, BI made it compulsory for the public to use Rupiah as medium of payment so the need for Rupiah would not expand. The Ministry of Trade even involved the Police to taken action on violators to the rule.

Some transactions at home still using USD was among others for payment of textile by buyer to company. A condition as such was no longer happening in many developing countries, it burdened national economic growth because Indonesia was no producer of USD.

The regulation applied to transactions at home for cash and non cash transactions. People’s obedience was expected so BI did not have to put sanction on violators. The charge put on cash transaction could be Criminal Law while for non cash transactions the convict could be excluded from payment system.

BI had issued a circular latter that made in mandatory to use Rupiah as medium of payment in any transactions within the territory of the Republic of Indonesia. To legalize the rule, BI on June 1, 2015 issued Circular Latter Number 17/11/DKSP on mandatory use of Rupiah as medium of payment in the territory of the Republic of Indonesia.

According to the circular latter, the projects included infra structure for transportation, airport service, harbor service, railway service, transportation infra structure like tol roads and bridge, water reservoirs including pipelining, sanitation, water treatment, wastage handling, garbage collection and garbage disposal, infra structure for telecommunication and information, e-networking, infra structure for electricity distribution, powerhouses based on geo thermal, fossil fuel and gas, and tapping and distribution of oil and natural gas.

However, BI could allow exception to the rule if the projects were declared by the Government as strategic infra structure testified by certificate from the related ministries.

Again, BI’s effort was to anticipate the Fed’s action who might increase FFR by July, August or September 2015.

Rumors was out that BI planned to control volatility of Rupiah against USD around 10% only. However, BI did not the level of Rupiah volatility to be tolerated. BI felt sure that in the next 3 years Currency War would still happen all over the world.

From the above picture Rupiah was predicted to be in the range of Rp.13,200 – Rp.13,300 per USD and continue to be at around Rp.12,950 – Rp.13,150 per USD.

The Capital Market

Last Thursday (11/6) IHSG dropped by 4 points due to selling pressures by foreign investors. Indonesia Security Exchange (BEI) was way behind compact stockmarkets.

Starting transactions on Thursday morning (11/6), IHSG strengthened by 37.635 points (076%) to the level of 4,971.192 being driven by strengthening of premium shares were the investors’ target. Unfortunately acts of selling by foreign investors pushed IHSG down to the red zone after reaching its highest level today at 4,979; index moved horizontally after falling.

During closing session in Session 1, IHSG thinned out by 5.435 points (0.16%) to the level of 4,928.122. strengthening of IHSG was halted as foreign investors decided to release shares. Act of selling by foreign investors again forced IHSG to weaken. Domestic investors hunting shares were unable to bring index back to the red zone.

To end the session on Thursday (11/6) IHSG was closed to inch down by 4,745 pints (0.10%) to the level of 4,928.812. Meanwhile index of LQ45 to the level of 844,7278. Foreign investors released their bank shares. By afternoon foreign investors were seen to make foreign net sell amounting to Rp673.858 billion in all markets.

Transactions were running moderately with frequency of 207,637 transactions with volume of 5,389 billion shares worth Rp.4,805 trillion. 142 shares went up, 128 went own and 101 stagnated. Asian stockmarkets were compact to close session stronger. Japan’s stockmarket soared up highest among regional stockmarket.

Index of Nikkei 225 soared by 336.61 points (1.68%) to the level of 20.97. Index of Hang Seng rose by 192.15 points (0.72%) to the level of 26,879.79. Index of Composite Shanghai strengthened by 15,56 points to the level of 5,121.59, Index of Straits Times gew by 25.71 points (0.77%) to the level of 3,351.48.

In general performance of Indonesia’s stockarket from early year to last week end (y t d) was seen as behind global stockmarket in response to economic slowdown in Q 1/2015. Marketplyers were expecting Government’s action of building infra structure would show its fruits and pose as positive sentiment to the domestic stockmarket.

According to BEI data performance of Indonesia’s stockmarket was left behind compared to world’s stockmarket. Indonesia’s stockmarket posted negative performance i.e. minus 2.62%. Globally, China’s stockmarket and Japan’s stockmarket excelled, both postes growth of 55.2% and 17.25% followed by Hong Kong and South Korea which posted performance of 15,46% and 7.96%.

In the Asean region the Philippines stockmarket performed better than other stockmarkets with increase of 4.10% over the same period. Furthermore followed by Thailand stockmarket 0.6%. the rest were Malaysia, Singapore and Indonesia which posted negative performance.

Negative performance of Indonesia’s stockmarket was on account of investor’s disappointment of Indonesia’s economic slowdown. Capital outflow from the domestic market was triggered by rotation and switching of capital to other regions especially China. The stockmarket of China was performing significantly being advantaged by falling world’s oil price.

China was one of the biggest oil importer country. Besides strengthening of USD had its impact on increase of China’s export to the USA. Beside the two external factors, positive sentiment was also supported by the People’s Bank of China which was more stimulating and dovish.

In terms of Price Earning Ratio, China’s stockmarket was higher compared to PER of Indonesian stockmarket. The same was with Debt Equity Ratio (DER) of China’s stockmarket which was higher than that of Indonesia, meaning investor in China were buying companies having bigger debt.

Allocations for investors’ shares was in fact smaller, considering that companies that companies must prioritize payment to creditors. Somehow investor’s perception of Indonesia was still negative as indicated by increase of Credit Default Swap (CDS). In fact investors feared Indonesia’s economic slowdown, beside depreciation of Rupiah.

Performance of Indonesia’s stockmarket was bad due to economic slowdown and Government’s performance which was against public expectation. Stockplayers could not predict when corrections would end. They expected Government’s performance would be better in Semester II.

The cost of failure of Indonesia’s stockmarket would be high unless there was betterment in economic performance as indicated by better rating given by rating agencies.

Betterment on the macro side could bring higher expectations among emitents whose shares were posted at the stockmarket and valuation of the Indonesian stockmarket could be less expensive.

So far the OJK had not run any policy to relax the Indonesian stockmarket as it was still at the stage of observation. OJK stated that the market condition might be rated as fluctuating significantly if IHSG for three consecutive days dropped by 10% or more.

Relaxation could be by way of making regulations on buy back without shareholders Extraordinary Meetings (RUPS). However if downturn of IHSG in 3 consecutive days dropped by 10% relaxation was not automatically in effect. OJK would review further the cause of the downturn. The downturn of index was not only happening to Indonesia’s stockmarket but also elsewhere in the world.

The case was regulated by the regulation of OJK Number 2/POJK.04/2013 dated August, furthermore written in OJK circular letter Number 1/SEOJK.04.2013 and the Regulation was lifted on May 2014 as the condition of capital market was then normal.

One thing was sure that after the banking sector was the main propeller of IHSG, since 2014 the plantation sector kept continuing strengthening of performance where growth was highest on the profit side, nearly 125%. The emitent which made significant net profit was PT Astra Argo Lestari Tbk, PT Smart Tbk and some other plantation emitents.

Although there were some plantations that posted loss, in terms of total asset the agro sector was always on the upturn. It was believed that the plantation sector would always score increase of performance as there were projections that global commodity prices.

Growth of the plantation and agro sector always tend to follow the dynamics of global commodity and capital market. Analyst rated that increase oil price which soared abode USD 60 per barrel would not last long. Predictably price of oil would again be corrected as US economic recovery was signal for the Fed to normalize monetary policy and the fund normally used or speculations would return to the moneymarket.

US economic recovery would be responded by the Fed increasing FFR by 25 basic points to above 100 basic points. As USD strengthened it was almost sure that in the future demand for commodity would lessen.

Beside normalization of US monetary policy by the Fed, Iran’s plan to double their oil production output would affect demand. Beside data of China’s import-export which posted downturn would influence oil price in the future. As known, China was the biggest importer of oil in the world.

Finally, although the risk of portfolio outflow tend to continue due to increase US benchmark rate, happened in Semester 2 being supported by stronger economic growth cycle and bettered current account deficit and continuing structural reformation.

So IHSG moved in the range of 5,025 – 5,075 last week (12/6) and continue to the range of 5,075 – 5,150 triggered by upgoing shares from local and foreign investors since the price was too low. (SS)

Business News - June 10, 2015