Indonesia Stock Market: Overview and Analysis of Last Week's Performance
Although many global indices were up, Indonesia's benchmark stock index (IHSG) fell a total of 2.93 percent during last week's trading. One important issue on global indices is the tapering off of the Federal Reserve's quantitative easing (QE3). On 17 and 18 September, the next meeting of the FOMC is scheduled, which is expected to discuss the future of QE3. Notably, as the meeting comes closer, most global indices in fact rise. Thus, market players seem to have become less concerned about an end to QE3.
Another conclusion we can draw is that - if global markets rise ahead of the FOMC meeting except for Indonesia's IHSG - the IHSG is falling because of domestic reasons. From Monday (02/09) to Friday (06/09), foreign investors recorded a nett sell of IDR 830.64 billion (USD $75.5 million). On the positive side, this amount is less than last week's IDR 1.12 trillion (USD $101.8 million).
What Causes Negative Markets Sentiments on the Indonesia Stock Exchange?
One important internal concern for people who invest in Indonesian assets is the country's current account deficit. At the start of the week, Statistics Indonesia announced that July's trade deficit widened significantly from the previous month (from a deficit of USD $850 million in June to a deficit of USD $2.3 billion in July). In the second quarter of 2013, the current account deficit stood at USD $9.8 billion, equivalent to 4.4 percent of GDP. This situation is particularly caused by a deficit in the country's oil & gas sector.
Indonesia's currency, the rupiah, continued to depreciate against the US dollar last week. Apart from the widening current account deficit, another factor that contributed to the downward spiral was the International Monetary Fund's (IMF) downgrade of its outlook for economic growth in Indonesia to 5.25 percent in 2013 (from 6.3 percent in the institution's April outlook). Moreover, good economic data from the USA, including manufacturing data and construction spending, lifted the value of the US dollar, thus putting pressures on the rupiah.
| Source: Bank IndonesiaThe above-mentioned negative factors were able to offset Indonesia's positive August inflation figure. Indonesia has been hit by high inflation after the government increased prices of subsidized fuels in late June. Inflation in July turned out to be much higher than analysts and the government had forecast, and this caused widespread concerns that August inflation might also be much higher. However, although still high, Indonesia's August inflation number was below (the upward revised) projection. Inflation in August rose 1.12 percent. Indonesia's inflation rate is now 8.79 percent year-on-year; still high but expected to moderate in the months ahead.
Asian Stock Markets
Various economic figures made a positive impact on Asian stock indices last week. These include, China's NBS manufacturing PMI, China's HSBC manufacturing PMI, Australia's building permits, Japan's capital spending, China's services industry, Goldman Sachs Group forecast for economic growth in China (revised up to 7.6 percent), and Australia's GDP growth. These figures were able to offset concerns about a possible military operation in Syria. Positive market sentiments in Asia also stemmed from the United States, where car sales increased and the Beige Book indicated that the US economy is continuing its recovery process.
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