Federal Reserve and China Cause Global Distress Among Investors
Concerns about an ending to the Federal Reserve's quantitative easing program and falling industrial activity in China as well as China's credit crisis made many investors decide to sell assets on stock markets around the world on Thursday (20/06). Indonesia's main stock index (IHSG) was just one of the many victims of this global unrest. The index weakened 3.68 percent to 4,629.99 points as foreign investors mostly sold their Indonesian assets, resulting in significant lowered share prices of Indonesia's big cap companies.
On Wednesday (19/06), Ben Bernanke, chairman of the Federal Reserve, said that the Fed may scale back its bond buying program towards the end of 2013 and stop it altogether in 2014 (if economic recovery of the Unites States continues). This message caused 10-year US Treasury yields to spiral to a 15-month peak of 2.38 percent, which subsequently results in US dollar buying.
According to the HSBC bank, China's industrial activity (manufacturing PMI) continued to shrink in June 2013 and has reached its lowest pace in nine months. But apart from disappointing industrial performance, China also has a credit crisis to deal with as its credit-driven growth period seems to be over. The country's key lending rates have reached historic highs and corporate debt is huge. According to Fitch Ratings, loans from banks and shadow banking institutions in China amounted to 198 percent of gross domestic product (GDP) in 2012, up from 125 percent in 2008.
Yesterday (20/06), Indonesia's central bank (Bank Indonesia) and the Indonesian government met to discuss options to prevent further impact of global distress on the country's currency (IDR rupiah) and stock market. One of the options is the ´Bond Stabilization Framework´, which has already been prepared by the Finance ministry and the State-Owned Enterprises ministry years ago. This framework involves a crisis management program established in joint cooperation between state-owned financial companies and Indonesia´s central bank. It aims to guarantee the availability of liquidity as well as monetary stability.
Similarly, stock indices in the United States fell on Thursday (20/06). The Standard & Poor's 500 index fell 2.5 percent to 1,588.19, its sharpest fall since November 2011, while the Dow Jones Industrial Average weakened 2.3 percent to 14,758.32. Investors in the United States are most likely to wait and see before making any large investment choices.
The MSCI All-Country World index was down 3.4 percent, its sharpest fall in 19 months. Asian stocks in the index weakened 4.1 percent, while European stocks fell 3.0 percent. For both continents, it meant the largest weakening since 2011.
With the notable exception of Japan, most stock indices in Asia lost two to three percentage points on yesterday's trading day (20/06). Stock indices, currencies and commodities all crumbled, causing investors to dump assets in emerging markets. The IDR rupiah is now very close to the 10,000 per US dollar line and has been one of the weakest Asian currencies against the US dollar in 2013.
| Source: Bank Indonesia•
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