Global markets declined for a fifth straight day on Thursday (24/09) on persistent negative sentiments related to sluggish global economic growth, the Volkswagen emission scandal and the continuation of uncertainty about the timing of higher US interest rates after the Federal Reserve kept rates unchanged at its September policy meeting. Japan’s Nikkei 225 Index fell 2.76 percent today, while European and US stocks are deep in the red. Indonesian markets were closed due to Idul Adha celebrations (the Muslim day of sacrifice) and will therefore respond to these developments on Friday (25/09).

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Apart from external factors (China’s weak manufacturing activity and persistent uncertainty about the timing of higher US interest rates) that plague Indonesian assets today, there are also domestic factors that push Indonesian stocks and the rupiah into the red. These domestic factors include Indonesia’s downgraded economic growth forecasts and the central bank’s downgraded rupiah outlook. Meanwhile, Indonesia’s foreign exchange reserves - used to defend the rupiah - have declined further.

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In line with other Asian markets, Indonesian stocks and the rupiah are weakening heavily on Wednesday (23/09). Based on the Bloomberg Dollar Index, Indonesia’s rupiah had depreciated 0.71 percent to IDR 14,655 per US dollar by 11:08 am local Jakarta time, while the benchmark Jakarta Composite Index had fallen 1.56 percent to 4,276.43 points by the same time, with the financial sector in particular taking a hit. There are several causes that explain this weak performance today.

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Today (22/09), the Indonesian rupiah extended its weak performance and has passed beyond the level of IDR 14,500 per US dollar. Most Asian currencies continue to fall against the greenback as uncertainty about the timing of higher US interest rates persists. Although the Federal Reserve decided to postpone a Fed Fund Rate hike at its September policy meeting, markets are still preparing for a hike before the year-end as many Federal Reserve objectives had been met.

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The central bank of Indonesia (Bank Indonesia) estimates that inflation will ease below seven percent year-on-year (y/y) in September 2015 on the back of lower prices of raw foods and lower administered prices (including fuel and electricity) in the post the Ramadan and Idul Fitri period. Bank Indonesia Governor Agus Martowardojo said the central bank expects inflation at around 6.95 percent (y/y) in September.

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Most Asian markets started weak in the new trading week on persistent uncertainty about the timing of higher US interest rates after the US Federal Reserve decided to postpone a Fed Fund Rate hike last week. This context raises investors’ appetite for safe haven assets. By 13:45 pm local Jakarta time on Monday (21/09), Indonesia’s rupiah had depreciated 0.66 percent to IDR 14,469 per US dollar according to the Bloomberg Dollar Index, while the benchmark Jakarta Composite Index was down 0.22 percent to 4,370.63 points.

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Indonesia’s foreign debt growth slowed in July 2015 by 3.7 percent (y/y) to a total of USD $303.7 billion from a 6.3 percent (y/y) growth pace in the preceding month. Based on the latest data from Indonesia’s central bank (Bank Indonesia) the nation’s total external debt consisted of USD $134.5 billion public sector foreign debt and USD $169.2 billion private sector foreign debt. Both public and private sector foreign debt growth slowed in July (compared to June) as these sectors were hesitant to take on more debt due to the depreciating rupiah.

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After the Federal Reserve announced that it kept its key interest rate at the historically low level of 0.0-0.25 percent at the September policy meeting, most of Asia’s emerging market stocks were up on relief that their currencies are not to depreciate heavily (yet) due to the looming rate hike. Yesterday (17/09), the US central bank said it postponed further monetary tightening due to weakness in the global economy, unsettled financial markets, and low US inflation. However, a Fed Fund Rate hike is still likely to occur before the year-end.

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In line with expectation, the central bank of Indonesia (Bank Indonesia) decided to keep its key interest rate (BI rate) at 7.50 percent for a seven consecutive month in September’s Board of Governor’s meeting (17/09) as it aims to stabilize the rupiah amid global volatility caused by looming higher US interest rates and China’s hard landing (as well as yuan depreciation), while combating inflation which stood at 7.18 percent (y/y) in August. The overnight deposit facility rate and lending facility rate were left unchanged at 5.5 percent and 8 percent, respectively.

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Morgan Stanley Investment Management, a leading global investment firm, said it now considers Indonesia’s rupiah and Malaysia ringgit as the most attractive emerging-market currencies. Both currencies have been the worst-performing Asian currencies against the US dollar this year amid looming tighter monetary policy in the USA, low commodity prices and China’s economic slowdown (as well as a political scandal in Malaysia). The ringgit has depreciated 21 percent, while the rupiah has weakened 16.2 percent against the US dollar since the start of the year. Both currencies are touching 17-year lows.

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On this week's second day of trading (01/10), the benchmark stock index of Indonesia (IHSG) was able to post a 0.69 percent rise to 4,345.90 points despite ongoing concerns about the economic shutdown in the United States as discussions have not led to agreement about the country's debt ceiling. However, various data from Asia made a good impact. Indonesia's trade surplus in August and deflation in September contributed to positive market sentiments and provided a boost for the rupiah.

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Concerns about the US debt ceiling issue have a negative impact on stock indices around the world, including Indonesia's benchmark stock index (IHSG). Market players fear a possible deadlock during the state budget discussions, which - if not resolved - will have a serious negative impact on the economy. Factors that contributed to negative market sentiments were the continued depreciating value of rupiah and weak openings of European stock indices. The IHSG fell 2.43 percent to 4,316.18 on Monday (30/09).

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Investors are eagerly waiting for the release of Indonesia's September inflation rate. Indonesia has been hit by high inflation since the government decided to increase prices of subsidized fuels at the end of June. High inflation limits its people's purchasing power and as domestic consumption accounts for about 55 percent of Indonesia's economic growth, it thus impacts negatively on GDP growth, particularly after Bank Indonesia raised its benchmark interest rate (BI rate) from 5.75 to 7.25 percent between June and September.

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Indonesia's benchmark stock index (IHSG) was up 0.40 percent to 4,423.72 on Friday (27/09). The gain was mainly carried by demand for a number of Indonesian blue chip stocks. Astra International rose 1.16 percent after Deutsche Securities Indonesia, Credit Suisse Securities Indonesia and Citigroup Securities Indonesia increased their stakes in one of Indonesia's largest diversified conglomerates. Other blue chips that performed well were Perusahaan Gas Negara, Bank Mandiri, Telekomunikasi Indonesia and Indofood Sukses Makmur.

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As had been hoped, after closing the gap at 4.375-4.403, Indonesia's benchmark stock index (IHSG) did not continue its fall at the same pace as it had in the past couple of days. Investors were still cautious, however, and took a wait and see attitude. Foreign investors were net sellers of Indonesian stocks, while the rupiah exchange rate kept depreciating. Moreover, Asian stock indices were mixed and thus provided no good support for the IHSG. The index fell 0.02 percent to 4,405.89. Domestic investors were net buyers of Indonesian stocks.

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Both the Indonesian currency and the benchmark stock index (IHSG) continued their fall on Tuesday (24/09). Wall Street's weak performance on the last three trading days was a major factor that brought negative market sentiments to the Indonesia Stock Exchange (IDX). Even good openings in Europe were not able to push the IHSG back into green territory. The index fell 2.25 percent to 4,460.41 points. Foreign investors were net sellers of Indonesian stocks, while domestic investors were net buyers.

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Indonesia's benchmark stock index (IHSG) extended its downward movement on Monday (23/09) as investors continued to look for profits after the index had risen sharply following the announcement that the US quantitative easing program will not be ended yet. Pressures on the IHSG were intensified by the depreciating rupiah and the weakening of Hong Kong's Hang Seng Index (which was partly brought on by a typhoon). Despite foreign investors being net buyers of Indonesian stocks, the IHSG fell 0.46 percent to 4,562.86 points.

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On Thursday (19/09), most currencies and stock indices outside the USA were bullish after the Federal Reserve decided to continue its massive monthly USD $85 billion bond buying program. Today (20/09), Asian currencies and stock indices took the foot off the gas as many investors sought to cash in on yesterday's gains. The MSCI Asia Pacific was still able to rise slightly (0.1 percent) after jumping 2.2 percent yesterday, but Indonesia's benchmark stock index (IHSG) plunged 1.86 percent (after gaining 4.65 percent yesterday).

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Contrary to the expectation of most analysts, the Federal Reserve decided to continue its monthly USD $85 billion bond-buying program, known as quantitative easing, and retained the low interest rate of 0.25 percent. Although coming as a surprise, the news was well-received by the investor community all around the world, who were eager and confident to purchase stocks. The benchmark stock index of Indonesia, IHSG, felt this impact too and rose 4.65 percent to 4,670.73 points.

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Market participants are waiting for the outcome of the Federal Reserve's FOMC meeting, which will deal with the future of the quantitative easing program. The wait and see attitude of investors made the benchmark index of Indonesia (IHSG) fall 1.20 percent to 4,463.25 points. Few big cap stocks were able to rise and although some second liners were up, it was not enough to push the IHSG into the green zone. The rupiah continued to weaken and foreign investors were again mostly selling their Indonesian assets.

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