Indonesia's main stock index, the IHSG, continued its rally on Wednesday 17 April due to increased US monthly Housing Starts, decreased US inflation, as well as financial results of companies that indicated revenues and net profits exceeded expectations. Moreover, the IMF upgraded its outlook for East Asia's economic, which made investors buy stocks. Within Indonesia, there was enthusiasm regarding Q1-2013 corporate results and dividend payouts, which offset uncertainties about the new fuel policy.
Foreign investor were keen on buying Indonesia's big-cap stocks and this helped to push the level of the IHSG up to 4,998.65, an 1.08 percent gain. Trade volume and total value of transactions rose with foreign investors recording a net purchase while domestic investors recorded a net sell.
The IDR rupiah rebounded slightly as Australia's monthly MI Leading Index rose and as the IHSG strengthened (which was accompanied by the inflow of foreign investment and the weakening of the gold price). On the other hand, the Indonesian government's plan to increase the heavily subsidized fuel price is expected to give rise to inflation, which might trigger Indonesia's Central Bank (Bank Indonesia) to raise its benchmark interest rate from 5.75 percent currently. Another factor that limited the rupiah's gain was that the government's state budget deficit is expected to swell to about 2.0-2.4 percent from last year's 1.63 percent.| Source: Bank Indonesia
Asian stock markets were still mixed as China's index fell when it was expected that the pace of its bank credits will slow down. The Nikkei, however, rose due to the IMF's positive outlook for Japan's growth. According to the institution, the government's aggressive stimulus policy will make Japan grow 1.6 percent this year (from its previous estimate of 1.2 percent) and 1.4 percent next year. China's projection for this year's economic growth, on the other hand, was lowered from 8.2 to 8.0 percent.
The IHSG's next psychological boundary is in sight (5,000 points). However, in our opinion fundamental support to reach this new landmark is currently lacking. If - based on emotions - the index will reach the 5,000 points mark, we think it will fall quickly due to profit taking. Not just because of the uncertainties regarding Indonesia's fuel policy but also because of international uncertainties: concerns about a war in Korea, China's reduced economic growth, bailouts in Europe, the US debt ceiling and possible fiscal cliff, and possible publications of financial reports that do not meet expectation.
One last note. We consider it positive if the government raises the price of subsidized fuel in May as the cycle of the IHSG usually shows a decline in the month of May. If we will see another example of large-scale asset dumping anyway, why not include negative sentiments brought on by the increase of the fuel price?