Stock Market & Rupiah Update Indonesia: the “Palm Oil Effect”
The benchmark stock index of Indonesia (Jakarta Composite Index) hit a record high on Friday (06/02) on the back of rising palm oil-related stocks (palm oil demand is expected to grow due to the Indonesian government’s proposal to increase biodiesel subsidies) and an improvement in the country’s foreign exchange reserves which shows that economic fundamentals remain strong in current global uncertain times. Corporate earnings results of Indonesian companies also provide positive market sentiments.
In line with most regional stock indices in the Asia Pacific region, the Jakarta Composite Index climbed 1.19 percent to 5,342.51 points on Friday (06/02), also supported by rebounding oil prices.
Indonesia’s parliament agreed to the government’s proposal to increase biodiesel subsidy from IDR 1,500 per liter to IDR 4,000 (USD $0.32). The country’s biofuel producers requested this subsidy increase as production costs of biofuel started to exceed market prices due to low global palm oil prices. As a result of the news, palm oil futures surged most in more than two years as palm oil demand in Indonesia is expected to jump. Indonesia is the world’s largest producer and exporter of crude palm oil.
Blue chip palm oil producers Astra Agro Lestari (+7.98 percent), BW Plantation (+6.61 percent), Sampoerna Agro (+4.59 percent) and PP London Sumatera (+4.56 percent) were the winners of the day. In general, Indonesia’s agriculture sub-index rose 3.68 percent on Friday (06/02).
Togar Sitanggang, Secretary-General of the Indonesian Biofuel Producers’ Association (Aprobi), stated last week that biodiesel consumption in Indonesia is expected to climb to 2.2 million kiloliters (kl) in 2015, up significantly from 1.7 million kl last year.
Meanwhile, the central bank (Bank Indonesia) announced that Indonesia’s foreign exchange reserves climbed to USD $114.25 billion at the end of January 2015 (from USD $111.86 billion in the previous month). The growth was caused on receipts of the government’s issuance of global bonds. In January the government sold USD $4 billion worth of bonds (the 10-year and 30-year notes having 4.200 percent and 5.200 percent, respectively).
According to Bank Indonesia, the country’s January foreign exchange reserves can adequately cover 6.8 months of imports or 6.6 months of imports and servicing of government external debt repayment, well above the international standards of reserve adequacy at three months of imports.
Positive market sentiment on the Indonesia Stock Exchange were also caused by optimism about Indonesia’s economic growth in 2015. After having slowed to a low of 5.02 percent (y/y) in 2014, investors are positive that in 2015 growth will accelerate for the first time since 2011. This optimism is partly based on the financial performance of Indonesian banks in 2014. Although the majority of companies are yet to publish their corporate earnings, several solid earnings of banks are encouraging signs.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.32 percent to IDR 12,613 per US dollar on Friday (06/02).
| Source: Bank IndonesiaBahas
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