Market Update: Indonesian Stocks Extending Losses on Wednesday

Over the past couple of days, investors (especially foreign ones) have sold Indonesian stocks. Foreign investors recorded combined net selling of IDR 4.06 trillion (USD $315 million) on the first two trading days of the week.

What are the Negative Market Sentiments?

The financial reports of several large listed Indonesian companies (covering the performance over the first quarter of 2015) were below expectation. Most investors use the corporate performance of Astra International, one of the leading diversified conglomerates in Indonesia, to measure the state of the Indonesian economy. In Q1-2015, Astra International’s net profit and revenue declined 15.6 percent and 9 percent, respectively, from the same quarter last year. The company is regarded as the barometer of the Indonesian economy due to its presence in various sectors of the economy. As such, when the financial figures of Astra International disappoint, it implies general economic growth is most likely to disappoint as well.

Indonesia has been experiencing a period of slowing economic growth since 2011 amid the sluggish global economy (negatively affecting Indonesia’s export performance, especially due to low commodity prices), and the relatively high domestic interest rate environment (curbing Indonesia’s domestic consumption, which accounts for about 55 percent of total economic growth in Southeast Asia’s largest economy). Although market participants hoped to see a rebound after new President Joko Widodo’s reform-minded administration was inaugurated in October 2014, signs are on the wall that the economic slowdown has not ended yet.

Due to Indonesia’s traditional over-dependence on commodity exports and household consumption, Widodo aims to make investment the pillar of Indonesia’s economic growth. However, it will require serious homework for the government to create a more conducive investment climate in order to attract foreign investment. Moreover, market participants are disappointed to see that the ambitious government infrastructure projects have not seen groundbreaking yet this year. Widodo pledged that infrastructure development would be one of the main focuses of the government; these projects would have a multiplier effect on the economy.

In early May 2015, Statistics Indonesia will release Indonesia’s official Q1-2015 GDP figure. If the figure will indeed fall below 5 percent (y/y), then the IHSG index is expected to fall below the psychological boundary of 5,000 points.

Markets may also wait & see ahead of results of the Federal Reserve’s two-day policy meeting that started on Tuesday (28/04). Although recent weak US macroeconomic data signal that there will not be a US interest rate hike before the last quarter of this year (dovish stance), the FOMC meetings always makes investors cautious.

Over the past couple of days, Indonesia also received serious negative press in global media due to the reluctance of Indonesian authorities to cancel the executions of eight convicted drug traffickers. Early on Wednesday morning, just after midnight, eight drug smugglers were executed (including seven foreigner citizens). Only the life of one smuggler - a woman from the Philippines - was saved as there emerged new evidence in her case that needs to be investigated.

Lastly, Indonesia’s central bank (Bank Indonesia) released a report which says that Indonesia’s economic growth will be limited to 6.5 percent (y/y) by 2019. This forecast is much lower than Widodo’s target to achieve a +7 percentage point (y/y) growth figure by the same year.

Bank Indonesia expects to see a modest 5 percent (y/y) GDP growth pace in the first quarter of 2015.

Most Southeast Asian stock markets extended losses on Wednesday.

Jakarta Composite Index (IHSG):

Meanwhile, the Indonesian rupiah had appreciated 0.20 percent to IDR 12,970 per US dollar according to the Bloomberg Dollar Index at 13:00 pm local Jakarta time. Due to the expected dovish stance of the Federal Reserve, the US dollar tends to weaken against global currencies including the rupiah.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.11 percent to IDR 12,964 per US dollar on Wednesday (29/04).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

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