Indonesia Stock Market Up 0.69%; What about the Influence of Ramadan?

On Friday 27 June 2014, it was reported that the Thomson Reuters/University of Michigan survey's consumer sentiment index for June 2014 rose to 82.5 from 81.9 in the previous month. This had a good impact on Asian indices on Monday.

Most Asian stock markets were up on Monday amid expectation that China’s manufacturing index will grow at the start of the month. Moreover, China is expected to ease rules on banks' loan-to-deposit ratio, in an attempt to free up more funds to boost economic growth in the world’s second largest economy.

Concerns about oil supply disruptions due to geopolitical tension in northern Iraq waned and as a result the US benchmark West Texas Intermediate for August delivery fell 43 cents to USD $105.31 per barrel in afternoon trade on Monday and Brent crude declined 37 cents to USD $112.93 per barrel. Since Indonesia is a net importer of oil, higher global oil prices burden the government’s budget balance.

Lastly, Japan’s industrial production (rising by a seasonally adjusted 0.5 percent month-on-month in May 2014, thus rebounding from a 2.8 percent month-on-month drop in the previous month) and construction orders (rising higher than expected) contributed to positive market sentiments in Asia.  

Impact of Ramadan on the Indonesia Stock Market?

If we take a look at the performance of the Jakarta Composite Index in the past five years, then we see that index only weakened twice during the holy fasting month of Ramadan (in 2011 and 2012). In particular the consumer goods sector has been able to deliver gains consistently during this month. This is mainly due to expected increased demand for consumer products, such as food products and beverages. The traditional higher consumption during Ramadan is also caused by consumers’ expectation of higher prices (Ramadan always triggers inflation) and therefore purchase items in large quantities (for storage purposes) and perhaps also because of sales promotion offered by retail outlets. Thus, for this year there is still potential for consumer stocks to rise further provided that Indonesians' purchasing power is not subdued, no big price increases occur, and no negative sentiments that cause an overall decline of the stock market happen (for example the outcome of the country’s presidential election).

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