On 26 October 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic and political topics such as last week's inauguration of Indonesia’s seventh President, economic growth, the impact of slowing GDP growth in China, a palm oil update, new rules in the tobacco industry, and more.

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Although stock indices on Wall Street were up on Thursday (23/10) on strong corporate earnings (including Caterpillar and 3M) and economic data (US hiring as well as business’ surveys in Europe that suggest the region may avoid slipping back into a recession), it failed to push emerging market stocks higher on Friday (24/10). Indonesia’s benchmark stock index fell 0.60 percent to 5,073.07. Meanwhile, the Indonesian rupiah exchange rate depreciated 0.05 percent to IDR 12,069 per US dollar (Bloomberg Dollar Index).

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With China’s economic growth slowing to 7.3 percent year-on-year (y/y) in the third quarter of 2014, Indonesian exports will be affected as China is one of Indonesia’s most important trading partners. Prior to the release of China’s Q3-2014 GDP growth result, the outgoing government of Indonesia had already trimmed its export target for 2014 as global commodity prices have still not picked up. In fact prices of palm oil, coal, rubber, copper and iron ore have fallen in the first three quarters of 2014 according to Indonesian government data.

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Exports of crude palm oil (CPO) and CPO derived products from Indonesia in the first nine months of 2014 only reached 15 million tons, down 1.75 percent from the same period last year. The main cause for this disappointing performance is slowing economic growth in China and India resulting in reduced palm oil demand from these two giant economies. As a result of weak global demand, the CPO price has fallen to an average price of USD $712 per ton in September 2014, down 5.4 percent from the previous month.

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In its October East Asia Pacific Economic Update, the World Bank states that developing countries in the East Asia Pacific will experience slightly slower economic growth in 2014. However, the pace of growth in the region, excluding China, will improve next year, particularly due to a gradual recovery in high-income economies which then boosts demand for exports from the East Asia Pacific region. The report also claims that the developing East Asia Pacific region remains the fastest-growing region in the world.

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Indonesian stocks and rupiah exchange rate weakened considerably on Friday (26/09) after Indonesian parliament approved a new bill that puts an end to direct local elections. Moreover, market sentiments were negative after stocks on Wall Street plunged on Thursday because of increasing concern about the global economy as well as consumers’ problems with Apple's latest software updates and new product launches (iPhone 6 and iPhone 6 Plus) resulting in a 3.8 percent slide of Apple shares.

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Speculation emerged that Indonesia will scrap its export tariff for crude palm oil (CPO) in an attempt to boost sales. Three weeks ago, Malaysia had already scrapped the export tax for CPO for a period of two months to support exports and reverse a decline in CPO prices. Malaysian palm oil exports then immediately surged over 30 percent (month-to-month) in the first half of September, indicating the success of the export tax policy. Thus, the two countries - the world’s two largest producers and exporters of CPO - may become involved in a ‘tax war’.

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Despite some concern about inflation, the US Federal Reserve stated that it will keep interest rates close to zero. The central bank announced this after the two-day policy meeting (Federal Open Market Committee, FOMC). Ahead of the meeting, market participants had increasingly speculated about the chance of sooner-than-expected US interest rate hikes as US economic data has generally been positive (including 4.2 percent GDP growth in the second quarter and weekly jobless claims that declined to near record lows).

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Ahead of the Federal Reserve’s Federal Open Market Committee (FOMC) meeting, the Indonesian rupiah exchange rate depreciated 1.26 percent to IDR 11,971 per US dollar based on the Bloomberg Dollar Index on Monday (15/09). Indonesia’s currency depreciated sharply ahead of the FOMC’s two-day meeting as investors are awaiting for the results on Thursday. As August US retail sales rose at the fastest pace in four months, a winding down of the US bond-buying program and looming US interest rates have resulted in a strong US dollar.

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The world is about to see the largest initial public offering (IPO) ever as China’s e-commerce company Alibaba may raise over USD $24 billion through its listing on the New York Stock Exchange on 18 September 2014, thus exceeding the value of IPOs of the Agriculture Bank of China (USD $22.1 billion), and the Industrial & Commercial Bank of China (USD $21.9 billion). Alibaba’s market capitalization, valued at about USD $162.7 billion, is the third-largest after Google (USD $400 billion) and Facebook (USD $201 billion).

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Indonesia's main stock index (IHSG) returned to where it belonged: above the level of 5,000 points. Apparently Moody's threat to downgrade Indonesia's credit rating, as has been done by Standard & Poor's a few days ago, did not leave a big impression on market participants. As a result, the IHSG rose 1.02 percent to 5,042.79 and thus almost repaired the damage done at the end of last week. Other Asian stock indices as well as positive openings in Europe also provided good support today.

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The release of Indonesia's April deflation figure (0.10%) and orderly May Day demonstrations provided a good environment for investors to continue purchasing Indonesian stocks (despite uncertainty about Indonesia's subsidized fuel policy. Moreover, positive Asian stock indices - in combination with positive European openings on Wednesday - made the Indonesia Stock Index (IHSG) rise to a new record level of 5,060.92 points on Wednesday (01/05/13), a 0.53 percent gain.

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Today, the Jakarta Composite Index (IHSG) was under pressure from the start of the trading day. It was negatively affected by mixed Asian indices as well as yesterday's mixed American indices (where the Dow Jones Index weakened whereas other American indices gained). It made investors, in particular foreign investors, eager to sell parts of their stock portfolios. At the end of today's trading day, the IHSG stood at 4,994.52, a 0.34 percent fall compared to yesterday.

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Positive moving stock indices in America and Europe on Tuesday (responding to various good corporate Q1-2013 data) were able to offset negative influence caused by weak manufacturing data from China and Europe. As a result Asian indices rose on Wednesday, including the Indonesia Stock Index (IHSG) which managed to reach beyond the psychological boundary of 5,000 points. The index ended at the level of 5,011.61, a 0.73 percent gain compared to the previous trading day.

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Rising American and European stock indices last Friday, helped to support Asian stock indices today (22 April 2013), including the Indonesia stock index (IHSG). However, the ongoing drama brought on by last Saturday's earthquake in China, impacted on the China stock index as well as on other Asian stock indices, including the IHSG. As the IHSG has been showing signs that it is overbought, market participants preferred to sell portions of their stock portfolios, resulting in a limited fall of the IHSG.

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Last week, the International Monetary Fund (IMF) published its World Economic Outlook (edition April 2013) titled "Hopes, Realities and Risks". In the report, the IMF lowered its forecast for global economic growth from an initial 3.5 percent (January edition) to 3.3 percent currently. Although the IMF lowered its economic forecasts for most countries (including emerging markets as a whole), it revised up its projection for the ASEAN-5 countries¹ by 0.3 percent to 5.9 percent.

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Despite non-conducive market sentiments, there was no stopping to the Indonesia stock index (IHSG) as it managed to reach its next psychological boundary on Thursday 18 April: 5,000 points. A fall in American energy and telecommunication stocks on the previous day - after corporate data indicated less-than-expected performances in the first quarter - buried hopes that the Dow Jones Index would hit another peak. As a result Asian stock indices were mostly negative.

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Indonesia's main stock index, the IHSG, continued its rally on Wednesday 17 April due to increased US monthly Housing Starts, decreased US inflation, as well as financial results of companies that indicated revenues and net profits exceeded expectations. Moreover, the IMF upgraded its outlook for East Asia's economic, which made investors buy stocks. Within Indonesia, there was enthusiasm regarding Q1-2013 corporate results and dividend payouts, which offset uncertainties about the new fuel policy.

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Most of us expected the Jakarta composite index (IHSG) to weaken on Tuesday 16 April 2013 amid mixed Asian stock indices and significantly weakened American and European indices on Monday (that responded to reports about both China's slowing economic growth and weak economic figures of America). Moreover, bomb explosions at the finish line of the marathon of Boston were expected to complicate the performance of the IHSG. But concerns turned out in vain.

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The latest World Bank report of East Asia and the Pacific states that "driven by strong domestic demand, economies of developing East Asia and Pacific continue to be an engine of global growth, growing at 7.5 percent in 2012 - higher than any other region in the world." Amid a recovering global economy the report projects that regional growth will rise to 7.8 percent in 2013 and ease to 7.6 percent in 2014.

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