Record High Level Indonesian Stocks on Sukuk Sale and Subsidy Reform
The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) ended at a record high on Wednesday (03/09) as market sentiments were positive after the Indonesian government raised USD $1.5 billion from 10-year dollar-denominated Islamic bonds (known as sukuk) on Tuesday (02/09). Foreign investors submitted USD $10 billion worth of bids, six times the amount offered, showing that they are confident about the country’s current and future economic prospects.
Investors are also optimistic that Joko Widodo (Jokowi), who takes office in October 2014, will raise prices of subsidized fuels in an effort to curb the generous fuel subsidies. Easing inflation is also a factor that causes positive markets sentiments. Indonesia’s annual inflation figure eased to 3.99 percent (year-on-year) in August 2014. Inflation may fall below the government target of 5.5 percent in 2014.
The IHSG rose 0.43 percent to 5,224.13, surpassing the previous record high level at 5,214.97 set on 20 May 2013.
Market participants traded around 8.3 billion shares, valued at IDR 18.3 trillion (USD $1.6 billion), more than this year’s average trading volume and value of 5.2 billion and IDR 6.2 trillion, respectively. Foreign investors recorded net buying of IDR 475.4 billion.
The agriculture sector led the gain on the Indonesia Stock Exchange (IDX) with a 1.4 percentage point growth, supported by rising shares of PP London Sumatra Indonesia (+2.4 percent) and BW Plantation (+2.3 percent). Only the miscellaneous sector declined today.
The US dollar-denominated sukuk sale resulted in gaining Indonesian bonds, thus pushing the 10-year yield to a one-month low amid optimism that Jokowi will make efforts to cut fuel subsidies. Positive sentiments from the sukuk sale carried over to the local bond markets. The yield on the government’s 8.375 percent notes maturing in March 2024 fell six basis points (0.06 percentage point) to close at 8.11 percent.
The Indonesian rupiah exchange rate depreciated 0.14 percent to IDR 11,764 per US dollar according to the Bloomberg Dollar Index. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.40 percent to IDR 11,781 per US dollar on Wednesday (03/09).
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