China, US Debt Ceiling and Q3-2013 Financial Results Support IHSG
The Jakarta Composite Index (IHSG), the benchmark stock index of Indonesia, gained 0.61 percent and ended on 4,546.57 on Friday (18/10). Stock trade showed a consolidating trend with the value of transactions in the regular market amounting to IDR 4.39 trillion (USD $388.5 million). Considering the full trading week, the IHSG gained 0.60 percent with an average daily transaction value of IDR 4.18 trillion. This value is below the previous week's average of IDR 4,36 trillion.
The limited rise of the IHSG last week (0.60 percent) was supported by conducive global stock markets as well as optimism about Indonesian companies' earnings releases for the third quarter of 2013.
Two international factors contributed significantly to last week's performance of the IHSG. Firstly, China's economic growth in quarter III-2013 reached 7.8 percent and thus exceeded the result of the previous quarter (7.5 percent). More importantly, China's improving economic performance supports Asian mining stocks as the country's demand for commodities rises. This is expected to result in higher commodity prices and will bring a positive impact on Indonesia's mining sector.
Secondly, global concerns about an US default moderated after Congress agreed to raise the country's debt ceiling. This impacted positively on global stock indices. It will also result in a stronger US dollar, which affects Indonesia in two ways. A stronger US dollar will cause a slowdown in imports as products become more expensive for Indonesian importers, and provides a boost for exports. As Indonesia is still coping with a wide current account deficit, the stronger US dollar therefore brings a positive impact. In 2014, the Indonesian government intends to reduce the current account deficit to below the three percent mark (of the country's gross domestic product). In the second quarter of 2013, the current account deficit recorded USD $9.8 billion, or 4.4 percent of GDP.
On the domestic side, company reports concerning financial results in the third quarter of 2013 are expected to support the IHSG. Last week, the first results were released. However, one important statistic which is still eagerly being awaited is Indonesia's GDP growth figure in this year's third quarter. If the outcome is above 5.8 percent then it will bring positive sentiments to the IHSG.
I expect the IHSG to continue rising this week due to the above-mentioned reasons. Support level of the index is 4,490 and its resistance level at 4,580.
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