Indonesian Stocks & Rupiah Again Under Pressure, Trump Effect
Donald Trump becoming US president causes investors to re-evaluate emerging market assets, and Indonesia is among the biggest victims. Trump is eager to make the USA "great again", partly by using the protectionist approach. Considering Trump may be supported by the Republican-controlled US Congress, investors see a real chance for realization of Trump's plans (which include infrastructure development, tax cuts, as well as the exiting of free trade and environment deals). This has a big impact on emerging markets.
The above-mentioned matters cause a strong US dollar as well as rising US Treasury yields (which makes investing in emerging markets less attractive). Over the past days a total of USD $450 billion has been wiped out of the MSCI Emerging Markets Index. Meanwhile, rising protectionism in the US implies that emerging markets like Indonesia will benefit less from US economic growth.
The future of the Trans-Pacific Partnership deal is unclear with Trump saying the deal is dead. Indonesian authorities previously expressed their intention to join this lucrative free trade deal.
By 10:25 am local Jakarta time on Monday (14/11), Indonesia's benchmark Jakarta Composite Index had plunged 2.87 percent, while the Indonesian rupiah had actually appreciated 0.24 percent to IDR 13,351 per US dollar. However, the rupiah is showing very volatile behavior, jumping up and down in the range of IDR 13,300 and IDR 13,600 per US dollar (Bloomberg Dollar Index). So far, it has not been confirmed whether Bank Indonesia is intervening in the market to stabilize the rupiah (like it did on Friday).
Other Asian currencies, however, continued their post-US election selloff today on concern that Trump's plans will boost US inflation and the US Federal Reserve therefore has to raise interest rates rapidly in the months ahead.
As usual Japan is the exception as the weaker yen makes Japan's export-oriented shares more attractive. Moreover, the better-than-expected GDP data strengthen investor sentiment. Japan's GDP expanded 2.2 percent (y/y) in the third quarter of 2016.