The Jakarta Composite Index (Indonesia's benchmark stock index, also known as IHSG) continued its upward rally on Monday (17/02) even though it had concerned us that the index almost touched its 'overbought' level. Especially as the index posted limited gain by the end of last week, it made us unsure about its performance on Monday. And while there are several factors that caused positive market sentiments, we still warn for potential weakening of the index due to profit taking. On Monday (17/02), the IHSG rose 1.05% to 4,555.37 points.
What were these factors that caused an optimistic atmosphere on the Indonesia Stock Exchange (IDX)?
On Friday (14/02), Bank Indonesia announced that the current account deficit eased significantly in the fourth quarter of 2013. At 1.98 percent of GDP (USD $4 billion), the deficit is at an sustainable level. Indonesia's record high current account deficit was one of the major reasons why international investors were concerned about the country's financial stability (resulting in significant capital outflows last year).
The Indonesian rupiah exchange rate extended its winning streak and has appreciated significantly against the US dollar since last week. The main reason for the strong currency is the positive news about Indonesia's current account deficit. Meanwhile, the US dollar continues to weaken as market participants respond to reduced US manufacturing production and industrial production.
Asian markets were up due to news about increased credit flows in China. During January 2014, Chinese banks' lending credit reached 1.32 trillion yuan, the highest amount in the past four years. China's outstanding loan growth also increased.
Lastly, Japan's GDP expanded 0.3 percent in the fourth quarter of 2013 and 1.0 percent year-on-year. These results were below market expectations and thus increased demand for the safe haven yen.