We expected that Indonesia's Jakarta Composite Index (the country's benchmark stock index also known as IHSG) would continue to weaken on Wednesday's trading day (19/03) but net buying by foreign investors managed to push the index back into green territory. During the first two days of this week, the IHSG fell as euphoria over Joko Widodo's announcement to run for president in the 2014 elections faded. Last week, the market showed that they approve of Widodo as the IHSG climbed 3.23 percent on Friday (14/03).
However, euphoria only lasted for one day. On the first two days of this week, the Jakarta Composite Index fell due to investors' appetite for profit taking. Fortunately, rising indices on Wall Street on Tuesday (18/03) and positive openings in Europe today, had a good impact on the IHSG. Indonesia's benchmark index gained 0.33 percent, ending at the level of 4,821.46 points.
Most Asian indices were down as investors tend to wait for results of the FOMC meeting before making large investment decisions. Moreover, the financial performance of a number of companies, including Uni-President China Holdings Ltd and Country Garden Holdings Co, were lower than expected. Meanwhile, negative market sentiments were caused by South Korea's lower producer price index (PPI), the barometer of future consumer price inflation (falling 0.9 percent year-on-year in February 2014) and Japan's trade balance, which is still in deficit in February 2014 (although having narrowed sharply from the previous month's record high).
The Indonesian rupiah exchange rate continued to depreciate during the days of the FOMC meeting. Although the market already knows that the US stimulus program will be cut by USD $10 billion per month, the US dollar always tends to appreciate ahead and during the FOMC meeting. Furthermore, investors are concerned having read the latest World Bank report which projects Indonesia's economic growth at 5.3 percent - similar to Fitch Ratings' forecast - in 2014. This is about 0.5 percentage point lower than the Indonesian government's and Bank Indonesia's forecast. Lastly, continued depreciation of Japan's yen also made the US dollar stronger.