Foreign outflows from Indonesia's stock market totaled IDR 230.5 billion (USD $23.1 million) and were partly responsible for the weakening trend. Market participants are mostly refraining from trading and want wait and see first with regard to potential risks that can emerge. In particular, the continued weakening of the rupiah is a concern. The Indonesian market is also negatively affected by slowing economic growth in China.

Bank Indonesia's announcement that the country's inflation rate has already reached 2.7 percent in the first three weeks of July has caused increased concerns. In anticipation of inflation, the central bank is expected to raise its benchmark interest rate again, but it will come at the expense of economic growth. The government is also busy fighting inflation through market operations (which aim at securing food stockpiles). Personally, I am pessimistic that those market operations will be fruitful. If inflation will exceed 2.3 percent (the initial target of the government) then it is reasonable to expect another correction in the IHSG.

Moreover, Indonesia still faces a problem in the trade balance. Amid global economic turmoil, prices of commodities have fallen while imports into Indonesia have grown due to robust economic growth. The lack of a high-quality domestic manufacturing industry causes that many products need to be imported (such as airplanes). As long as commodity prices have not rebounded, Indonesia will have troubles to overcome the negative trade balance.

This week, I expect the IHSG to consolidate while the value of transactions continues to fall. At the end of July, market participants will be highly focused on the release of companies' profit results for the first half of 2013. The upcoming Islamic celebrations (Idul Fitri) in early August will also make people less enthusiastic to speculate in the stock market (Indonesia's stock index will be closed for a number of days while the external market still operates). I believe the IHSG's support level is at 4,500 and its resistance level at 4,800.

David Sutyanto is a research analyst at Jakarta-based First Asia Capital