Indonesian assets are leading declines in Asia on Wednesday's trading day (05/10) as (global) markets are digesting the latest reports that the European Central Bank (ECB) may withdraw its bond buying program, while statements from US Federal Reserve officials strengthened the case for a Fed Funds Rate hike before the year-end. Lastly, the International Monetary Fund (IMF) cut its forecast for US economic growth in 2016 to 1.6 percent (y/y) from its earlier estimate of 2.2 percent (y/y).

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After the US Federal Reserve decided to leave its interest rates unchanged at the September policy meeting on Wednesday (21/09) Asian stocks surged while emerging market currencies appreciated against the US dollar. Indonesia's benchmark Jakarta Composite Index had surged 1 percent by 11:30 am local Jakarta time, while the Indonesian rupiah had appreciated 0.38 percent to IDR 13,087 per US dollar (Bloomberg Dollar Index). A delay in US monetary tightening makes the higher yielding (but riskier) emerging markets assets an attractive alternative.

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In line with the performance of US stocks overnight, Asian stocks plunged to a six-week low on Wednesday morning (14/09), while Asian currencies are under similar pressure. Investors have become increasingly concerned about weaker-than-estimated growth, while confidence in central banks' efforts to boost economies fades. Meanwhile, there remains a high degree of uncertainty about a looming interest rate hike in the United States. In Asia losses were extended as higher bond yields and excessive volatility encourage investors to unwind positions.

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Those who invest in Indonesian stocks and the rupiah may prefer to remain in 'wait and see'-mode ahead of the US Federal Reserve's September two-day policy meeting (20-21 September). In the new trading week markets are again plagued by a very high degree of volatility due to changing perceptions regarding the Fed Funds Rate hike. On Monday (12/09), when Indonesian markets were closed for a public holiday, Asia experienced a major selloff, following Wall Street last Friday when US stocks plunged on fears of a looming (sooner-than-later) Fed rate hike.

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The Indonesia Stock Exchange (IDX) expects to see 15 more companies conducting an initial public offering (IPO) on the local bourse in the remainder of the year, supported by the improving macroeconomic indicators of Indonesia (including a 5.18 percent y/y GDP growth pace in Q2-2016, 2.78 percent y/y inflation in August, and the central bank's lower interest rates) as well as the tax amnesty program (that should bring home trillions of rupiah, part of which finds its way into the local stock market). However, looming tighter monetary policy in the USA remains a challenge.

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As expected, emerging markets in Asia, including Indonesia, were negatively affected by the speech of Federal Reserve Chair Janet Yellen in Jackson Hole last week. Her speech - touching the topics of solid new jobs creation - provided ammunition for analysts and investors to raise speculation about a near-term US Fed Funds Rate hike. Indonesia's benchmark Jakarta Composite Index fell 1.25 percent to 5,370.76 points, while the Indonesian rupiah depreciated 0.42 percent to IDR 13,267 per US dollar (Bloomberg Dollar Index).

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After the speech of Federal Reserve Chair Janet Yellen at an annual meeting of central bankers in Jackson Hole (Wyoming) on Friday (26/08), speculation about a looming Fed Funds Rate hike has risen. In her speech Yellen said the case for higher US interest rates has strengthened in recent months due to the nation's economic growth and stronger jobs market. Meanwhile, Federal Reserve Vice Chairman Stanley Fischer said a US interest rate hike could come as early as September 2016.

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Most Asian stocks slid on Monday (22/08) as there occurred renewed speculation about a Fed Funds Rate hike in September 2016 after hawkish statements from Federal Reserve officials, while crude oil prices fell nearly 2 percent in Asian trade after Iraq indicated that it seeks to boost exports, hence effectively snapping a seven-day winning streak. However, Indonesia's benchmark Jakarta Composite Index (IHSG) was up 0.21 percent to 5,427.17 points on the first trading day of the new week.

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After six years of steady decline, the Indonesian rupiah is likely to have appreciated against the US dollar at the end of 2016. So far this year, the currency of Indonesia has appreciated 4.8 percent to IDR 13,126 against the greenback (Bloomberg Dollar Index) supported by capital inflows, particularly into government bonds and stocks as well as the delay in further monetary tightening in the USA. Although the rupiah should depreciate a bit as we go towards the end of the year, it is set to finish the year at a stronger level than it started.

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Amid mixed Asian stock markets, Indonesia's benchmark Jakarta Composite Index (IHSG) surged a whopping 1.67 percent on Thursday (18/08), one day after Indonesian markets were closed for Independence Day celebrations. Investors' risk appetite improved markedly after the Federal Reserves' July minutes signaled that it will still take a while before the US central bank is ready to implement another interest rate hike. Meanwhile, the Indonesian government proposed a realistic 2017 State Budget to the nation's House of Representatives.

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Technically the benchmark stock index of Indonesia (Jakarta Composite Index, or IHSG) had to rebound after sharp declines during the last couple of trading days making Indonesian stocks relatively cheap. The IHSG was also supported by rising stock indices in Japan and Hong Kong that rose on strong US jobs data (although other Asian markets fell due to concerns about sooner-than-expected US interest rate hikes. Meanwhile, the rupiah continued to depreciate as the market is concerned about the political situation in Indonesia.

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Amid political uncertainty and a looming increase in US interest rates, Indonesian stocks and the rupiah exchange rate weakened considerably in the past week. Market participants are increasingly concerned about the situation in Indonesia’s parliament where a majority of political parties - named the Merah-Putih coalition (led by defeated presidential candidate Prabowo Subianto) - is expected to undermine president-elect Joko Widodo’s reform programs as well as the democratic foundations of the country.

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US Federal Reserve Chairwoman Janet Yellen reminded global investors to prepare for a sooner-than-expected US interest rate hike (Fed Funds Rate, FFR) provided that the economy of the USA - the world’s largest economy - continues its improving trend. In fact, speculation has emerged that the FFR will be raised before the end of 2014 although Yellen stated more than once that the ‘close-to-zero’ interest rate environment would be maintained for a considerable period after the US bond-buying program (quantitative easing) has ended.

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In line with the trend on other Asian stock indices, the benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) fell on Monday (22/09) amid profit taking after three days of gains. Not even the appreciating rupiah exchange rate and net buying of foreign investors (IDR 26.6 billion) were able to push Indonesia’s index into the green zone. The IHSG declined 0.15 percent to 5,219.80 points. All sectors on the Indonesia Stock Exchange (IDX) fell except for the consumer goods and finance sectors.

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Indonesia’s fuel subsidy policy is estimated to have a large influence on investors’ confidence in the financial or fiscal fundamentals of Southeast Asia’s largest economy and thus on the performance of the local stock index and currency. New president elect Joko Widodo (popularly known as Jokowi) is expected to raise prices of subsidized fuels after taking office in late October 2014 in an attempt to combat the country’s wide current account deficit (mainly caused by expensive oil imports to meet domestic fuel demand).

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The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) closed 1.12 percent higher on Wednesday (17/09) supported by Tuesday’s positive stock indices on Wall Street as well as speculation that the US Federal Reserve will not raise its key interest rate yet. Today (17/09), the Federal Reserve will conclude its Federal Open Market Committee (FOMC) meeting. Lastly, after weak economic data, it was reported that China’s central bank (PBOC) injected USD $82 billion into the country's five largest banks.

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Stock markets in the Asia Pacific were down on Tuesday (16/09) as investors are awaiting the results of the Federal Open Market Committee (FOMC) today (Wednesday 17/09) and are focused on the condition of the Chinese economy. Moreover, investors were disappointed to hear that next Indonesian President Joko Widodo (Jokowi) will appoint 16 party politicians to lead ministries in his cabinet (which is in contrast with his initial plan to appoint technocrats). Lastly, the Indonesian rupiah exchange continued to depreciate.

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The Bank for International Settlements (BIS) wrote in its most recent report that emerging economies, which includes Indonesia, are highly vulnerable to severe capital outflows as investments from the West have been highly speculative and can be quickly pulled out from emerging markets. Even when only a light shock occurs, capital outflows will be significant as international investors have been showing ‘herd behaviour’. This behavior can rock the financial fundamentals of emerging markets and leave these countries shattered.

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The Indonesian rupiah exchange rate depreciated 0.35 percent to IDR 11,714 per US dollar according to the Bloomberg Dollar Index on Monday (25/08) as the positive market sentiments that were caused by Indonesia’s Constitutional Court that rejected Prabowo Subianto’s claim that the 2014 presidential election was invalid due to massive fraud, eased. Market participants were again looking at the domestic economic condition as well as international developments that are considered to impact on the performance of Indonesia’s currency.

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The Indonesian rupiah exchange rate depreciated slightly against the US dollar on Monday (18/08). At the end of the trading day the rupiah had weakened 0.07 percent to IDR 11,687 per US dollar according to the Bloomberg Dollar Index. This performance was in line with the performance of most other emerging Asian currencies as market participants are awaiting the Federal Reserve's annual Jackson Hole symposium which may provide new information about US short-term interest rates and other policy strategies.

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