30 March 2020 (closed)
USD/IDR (16,367) +31.01 +0.19%
EUR/IDR (18,045) -78.54 -0.43%
Jakarta Composite Index (4,414.15) -131.07 -2.88%
As financial market turbulence has reached extreme levels over the last several weeks, recent events have severely limited this year’s prospects for economic growth in both developed markets and emerging markets. Of course, it is still too early to accurately assess the true macroeconomic impact of COVID-19, so we are still dealing with broad conjectures more than anything else. But the widespread limitations on that have been placed upon international travelers and the severity of business disruptions that have been seen around the world will almost certainly impact global GDP figures for the next several quarters.
For Indonesia’s investors, the total impact of these health concerns seems to have disproportionately affected the region as both currency trends and stock valuations have been met with another round of extreme selling pressure. At the same time, significant portions of these bearish moves can be dismissed as panic reactions in highly volatile markets, which means it is unlikely that this extreme weakness will persist given the over-extended nature of the price action itself. In this article, we will take a look at some of these trends in order to assess the severity and sustainability of recent price movements throughout the market.
Chart View: USD/IDR (US Dollar - Indonesian Rupiah):
Trends in the Indonesian rupiah show that the currency has been sold heavily against the US dollar since the end of January. However, this characterization might actually be something of an understatement because the USD/IDR currency pair has essentially gone parabolic in the periods that followed the month of January. Of course, this is not favorable news for investors holding assets denominated in IDR but indicator readings are now deeply oversold and the market’s current levels are looking increasingly unsustainable. Prior to these declines, Indonesia’s investors should remember that the rupiah (IDR) was actually the best performing currency in all of Asia. So, while extreme volatility levels seem to have gripped the market, it would be reasonable to assume that the rupiah could reverse a substantial portion of these declines once market conditions are given an opportunity to normalize.
Chart View: iShares MSCI Indonesia ETF (NYSEARCA: EIDO):
Not surprisingly, the chart histories for Indonesian stock offerings are starting to look like mirror opposites of what is currently happening in regional currency markets. Massive declines have now been experienced in the iShares MSCI Indonesia ETF (NYSEARCA: EIDO), which is a fund that is designed to offer generalized exposure to companies within the regional economy. In part, this generalized holding structure might be responsible for the incredible declines we have seen in this fund. Clearly, some sectors are likely to sustain themselves better than others once we actually have some sort of conclusions to this global health scare. However, EIDO is broadly diversified (which also means that the fund includes exposure to vulnerable industry sectors).
As a result, it can be argued that funds like the iShares MSCI Indonesia ETF should not be viewed as an ideal performance gauge when viewing returns for 2020 across all portfolio strategy types. In both cases, Indonesian investors might want to exercise a level of calm, in spite of the incredibly large market movements we have seen over the last few weeks. Of course, it can be difficult to separate emotions from actions when dealing with a volatility surge that surpasses historical averages. But it would be very difficult to assume at this stage that Indonesia’s long-term economic progress will be severely impacted in areas that aren’t directly related to health-related aspects of the market. With that said, investors should keep position sizes small when looking to buy equities at these less expensive valuations and utilize stop-loss orders on all trades until market volatility returns to normal levels.
Poll Indonesia Investments: