Indonesia's Main Stock Index (IHSG) and Rupiah Are Extending its Losing Streak
On Tuesday (20/08), Indonesia's benchmark stock index (IHSG) continued its decline with its fourth consecutive day of losses. Amid major concerns about Indonesia's economic growth, high inflation, tighter monetary policy and current account deficit, the IHSG fell 3.21 percent to 4,174.98 points. It means that the index now stands about 21 percent lower than its record peak in May 2013. Foreign investors have been pulling money out of the Indonesian market. According to Bloomberg, about USD $255 million has been retracted in the last two days.
In order to provide some support for the weakening IHSG, minister of State-Owned Enterprises Dahlan Iskan asked various state-owned companies to buy back shares from the market. There are 21 state-controlled companies listed on the Indonesia Stock Exchange (IDX). Similarly, Indonesia's two largest state pension funds, Jamsostek and Taspen, announced they increased purchases of Indonesian shares. Possibly the support of these state-linked institutions helped to soften the decline of the IHSG on Tuesday (20/08). Around midday, the index was down almost six percent, but at the end of the trading day losses were reduced to 3.21 percent.
The Indonesian rupiah fell to its weakest level since April 2009. As the United States (and Europe) are showing signs of continued economic recovery, the Federal Reserve is expected to limit its quantitative easing program, which will see US dollars flowing back to the USA as interest rates rise. Moreover, the country's current account deficit places serious pressure on the currency.
| Source: Bank IndonesiaAs today's losses on the IDX share the same underlying reasons as yesterday, we refer you to this previous column for a more thorough analysis of why the Indonesia Stock Index is on a losing streak.
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