On the very last trading day of May (31/05), Indonesia's main stock index (IHSG) closed at 5,068.63 points. During the month, the index showed a volatile performance as it reached its peak at 5,251.29 and its low at 4,907.59 points. Overall, the IHSG continued to rise in May despite various negative sentiments. Foreign investors recorded a net sell of IDR 7.9 trillion (USD $806.12 million). However, optimistic domestic investors kept Indonesia's index in the green zone.
In the last week of May, the IHSG experienced various positive and negative sentiments. The country's strong property sector still forms the main pillar of support of the index. However, the upward revision of Indonesia's inflation assumption in the 2013 Revised State Budget is feared to influence the central bank's interest rate (currently still at a record low level of 5.75 percent), while the interest rate for micro lending has been showing a declining trend. Moreover, Indonesia's central bank expects economic growth in the second quarter of 2013 to be at 5.9 to 6.1 percent, which is lower than the institution's prediction for the first quarter of 2013. For Q1-2013, the central bank expected 6.2 percent of GDP growth, while realized growth turned out to be 6.02 percent.
China's discourse about possible coal import restrictions can disturb Indonesia's coal mining sector. Moreover, the Indonesian government is planning to raise royalties from those companies that hold a Mining Business License (Izin Usaha Pertambangan, IUP) in the domestic coal mining sector. Such a measure will have a negative impact on the country's coal mining businesses.
Other points of concern - from abroad - are the Federal Reserve's intention to lessen its stimulus package (quantitative easing), as well as the high unemployment figure of Europe. In the 17 EU member countries unemployment rose to 12.2 percent (Greece and Spain top the list with around 25 percent of unemployment).
In my opinion, Indonesia's index is susceptible to profit taking. The IHSG is the best performing country, after Japan and the Philippines, in terms of the stock market. The Philippines is now in fact a serious competitor to Indonesia regarding attracting foreign investment. The country's GDP growth reached 7.8 percent in Q1-2013, higher than China's 7.7 percent or Indonesia's 6.02 percent.
As such, I assume that profit taking will color the IHSG's movement ahead. The index is expected to move mixed with a weakening tendency, with the potential to test the support level at 5,000 points. Technically, the IHSG is susceptible to a correction. The MACD indicates a death cross, while the RSI indicator shows that it has left the overbought area and experiences a downtrend. Moreover, the IHSG closed under the 20dMA support level on the last trading day (31/05/13).
David Sutyanto is a research analyst at Jakarta-based First Asia Capital