Foreign Inflows in Indonesia's Capital Markets Continue in February 2014

Month 2014	Foreign Buying	Foreign Selling	Foreign Net Buying
January	IDR 38.6 trillion	IDR 36.2 trillion	IDR 2.3 trillion
February	IDR 36.0 trillion	IDR 29.3 trillion	IDR 6.7 trillion
Total	IDR 74.5 trillion	IDR 65.5 trillion	IDR 9.0 trillion

^{Source: Investor Daily}

These capital inflows so far this year is in stark contrast with the performance of Indonesia's benchmark stock index (known as Jakarta Composite Index or IHSG) in 2013. Last year, international investors recorded net selling of IDR 18.9 trillion (USD $1.6 billion) amid the looming end of the Federal Reserve's bond-buying program (quantitative easing). The IHSG reached a record high in late May 2013 but when Fed Chairman Ben Bernanke started to speculate about the end of US quantitative easing, international investors quickly pulled billions of (cheap) US dollars away from Indonesia. Indonesia - Southeast Asia's largest economy - was particularly vulnerable to capital outflows because the country showed some financial difficulties. Inflation had accelerated to almost nine percent (year-on-year) after the Indonesian government raised prices of subsidized fuels, while the country's current account deficit reached a record high in the second quarter of 2013 at USD $9.9 billion (or 4.4 percent of GDP). Meanwhile, the Indonesian rupiah exchange rate also felt the impact of weakening confidence. The currency fell over 21 percent against the US dollar in 2013.

On Friday (21/02), the Jakarta Composite Index extended its winning streak to five days as it rose 1.04 percent to 4,646.15 points supported by positive sentiments on global indices. US economic data that caused these positive sentiments were lower initial jobless claims and increased markit manufacturing PMI as well as consumer spending. Despite ongoing profit taking, the IHSG managed to stay in the green zone due to the impact of these US data on Asian stock indices. Particularly shares of banks were targeted, including Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Central Asia. Year-to-date, the Jakarta Composite Index has risen 8.7 percent (up to 21 February 2014).

Next week, the IHSG's performance is expected to be mixed, possibly even weakening as current technical indicators point to an overbought state of affairs, and a gap at 4,598 points that still needs to be closed.

The outlook for the remainder of 2014 is positive as the shock that was caused by US tapering has already been absorbed while macroeconomic data of Indonesia is improving (inflation, trade and rupiah). Director of Danareksa Sekuritas Marciano Herman believes that by the end of the year, international investors will have recorded net buying of IDR 10-15 trillion. Restored foreign confidence in Indonesia's market is also caused by the positive assessment of Goldman Sachs regarding investing in the MINT countries (Mexico, Indonesia, Nigeria and Turkey). Moreover, the loose monetary policy in Japan (money printing) also provides a boost to Asian markets, including Indonesia.

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