Benchmark Stock Index of Indonesia Jumps 1.30% on Monday
Despite various negative sentiments, Indonesia's benchmark stock index was able to post a 1.30 percent gain to 4,921.04 points on Monday (07/04). Due to last week's weak March US monthly jobs report, falling indices on Wall Street on Friday (04/04) impacted negatively on Asian indices today. On the domestic side, negative market sentiments were caused by the government's plan to raise royalties for coal miners working under a Mining Business License (IUP) to 10-13.5 percent as well as a luxury tax on cars and telecommunication gadgets.
Indonesia's trade and industry ministries intend to impose a luxury goods tax (PPnBM) on cell phones and luxury cars in an attempt to curtail domestic demand in order to further ease the country's current account deficit. Furthermore, Indonesia's Money Supply (M2) growth moderated further to 10.9 percent (year-on-year) in February 2014, down from +11.6 percent in the previous month.
Lastly, the World Bank stated today in its East Asia and Pacific Economic Update that it expects economic growth in Asian countries to slow due to slowing growth in China, the world's second-largest economy, as well as political tensions in Thailand. China's growth is believed to decline to 7.6 percent in 2014, down from the forecast last October (7.7 percent).
So, why did Indonesia's benchmark stock index (known as the Jakarta Composite Index or IHSG) surge 1.30 percent despite the aforementioned negative market sentiments? This can most likely be explained by the many dividend announcements, investors' expectation that the country's benchmark interest rate (BI rate) will be kept at 7.50 percent as well as the expectation that Indonesia's legislative election (held on Wednesday) will run smoothly.
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