A Day of Recovery: the IHSG Gains 1.91% after European Indices Open
Despite continued foreign selling of Indonesian stocks on today's trading day (12/06), we see that there is an end in sight to the sell of. During the last three days, Indonesia's main index (IHSG) had fallen considerably. The fall was led by the big cap companies that generally are target of most foreign investment. As stock prices of these companies had experienced a free fall in previous days, it made them attractive for limited buying. However, negative sentiments that have coloured the stock market recently, have not waned yet.
These negative market sentiments include uncertainty about when the price of subsidized fuel will be raised (and its inflationary impact), the fall of the IDR rupiah, and the fall of Indonesia's foreign exchange reserves.
Similar to other Asian stock indices, the IHSG initially fell during today's trading day. However, after European stock indices opened positive, the IHSG quickly found a way upward. At the end of the day, the IHSG increased 1.91 percent to 4,697.88 points.
The IDR rupiah continued its weakening trend even though Indonesia's central bank (Bank Indonesia) intervened in the market through market operations and through the raising of the deposit facility rate (Fasbi) by 25 bps to 4.25 percent. Bank Indonesia's tactic to use the foreign exchange reserves to support the rupiah was not well-received as investors are concerned about the falling reserves. This year, the reserves have fallen 5.70 percent up to 12 June 2013. It now stands at USD $105 billion from USD $112.8 in 2012.| Source: Bank Indonesia
Asian stock indices were still in the red zone as investors are worried about the Federal Reserve's plan to scale back its stimulus program. Moreover, the Bank of Japan has also announced not to have any plans yet to increase its stimulus package. This is not what investors currently want to hear.
The stock markets of Hong Kong and Shanghai were closed today due to the Dragon Boat festival.
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