Although the main stock index of Indonesia (IHSG) ended on a positive note last Friday (05/07) by rising 0.46 percent to 4,602.81, foreign investors still sold a net IDR 262 billion (USD $26.5 million) worth of shares, while the value of transactions in the regular market was only IDR 3.17 trillion (USD $320.2 million). The rise of the IHSG at the end of last week was more due to support from Asian indices that were up after the European Central Bank and Bank of England kept interest rates at 0.5 percent.
Considering the full week, the IHSG experienced a correction of 4.5 percent with foreigners selling a net IDR 2.5 trillion worth of Indonesian shares. The total value of daily transactions during the week fell from IDR 6.1 trillion (in the previous week) to IDR 3.64 trillion. This indicates that market participants are increasingly avoiding the Indonesian stock market amid concerns about higher inflation, slowing economic growth, and rising domestic interest rates.
Regarding Wall Street, the Dow Jones Index and S&P 500 ended strong on Friday, rising 0.98 percent and 1.02 percent respectively. Main reason for this upward movement was the release of US employment data. In June, the number of employed Americans rose by 195,000, thus exceeding the previous expectation of 165,000. This indicates that the economic recovery of the United States continues. Although an improving US economy could make the Federal Reserve decide to reduce and stop its stimulus program, the market seems to respond rationally to the economic data.
This week, I expect the IHSG to consolidate, but perhaps with a limited upward movement. If the IHSG goes past the 4,810 level, then we see the forming of a head and shoulder with the possibility to increase its rise to 5,200. However, as the index is still vulnerable to selling pressures, and falls below the 4,570 level then the support level will be at 4,400.
David Sutyanto is a research analyst at Jakarta-based First Asia Capital