Contrary to most Asian stock indices which were positively influenced by Japan’s higher economic growth as well as rising indices on Wall Street last Friday (06/06), the benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) fell considerably on Monday (09/06). Not even the appreciating Indonesian rupiah exchange rate could push the index back into the green zone. At the end of Monday’s trading day, the Jakarta Composite Index declined 1.06 percent to 4,885.08 points.
So, what explains this rather awkward behaviour of the IHSG today? It is possible that market participants prefer to wait and see first for the first debate between Indonesia’s two presidential candidates Joko ‘Jokowi’ Widodo and Prabowo Subianto. This evening (Monday 09/06) at 19.30pm local Jakarta time, both candidates will participate in a debate which is broadcast live on Indonesian television. But the weak performance of the IHSG could also be the influence of the FIFA World Cup which starts on 12 June 2014. Historically, the mind-set of market participants changes just ahead and during the World Cup.
Moreover, investors may be concerned about the government’s plan to increase prices of electricity tariffs in July 2014 as well as the central bank’s statement that Indonesia is vulnerable to external shocks.
Asian indices were generally up because of the higher Chinese trade surplus in May 2014 (USD $35.9 billion), supported by a sharp increase in exports (USD $195.5 billion). This caused speculation that conditions in the world’s second largest economy are improving. Furthermore, positive market sentiments came from Japan where GDP rose 6.7 percent (year-on-year) in the first quarter of 2014. Moreover, Japan’s current account and bank lending also improved. Lastly, the depreciating yen meant that investors were eager to invest in the country’s equity market.