Indonesian assets performed very well on Monday (03/10). Indonesia's benchmark Jakarta Composite Index surged 1.85 percent to 5,463.92 points, while the Indonesian rupiah appreciated 0.46 percent to IDR 12,983 per US dollar (Bloomberg Dollar Index). Overall, assets are improving worldwide due to easing concerns about the Deutsche Bank case, stabilizing oil prices, and China's stabilizing manufacturing activity. Indonesian assets, however, performed best supported by the government's successful tax amnesty program.
Risk appetite improved after it was reported that Deutsche Bank is negotiating a smaller fine with the US Department of Justice related to the selling of toxic mortgages. Both parties may settle for USD $5.4 billion in fines, rather than the initially reported USD $14 billion. Although this story has not been confirmed, it eases investors' concerns about the stability of Deutsche Bank.
A report released this morning indicated that China's official manufacturing PMI remained unchanged at 50.4 in September from the preceding month (a reading above 50.0 signals expansion in manufacturing activity), while activity in the nation's services sector picked up.
Indonesian assets, in particular, performed well. This is also related to the strong results of the first phase of the government's tax amnesty program. The Indonesian government collected IDR 97.2 trillion (approx. USD $7.5 billion) in additional tax revenue, or 58.9 percent of the nine-month program's full target (IDR 165 trillion) in the July-September 2016 period. Meanwhile, the total of asset declarations in the program's first phase was also a success. Asset declarations totaled IDR 3,603.6 trillion (approx. USD $277 billion), or 90.1 percent of the government's target (IDR 4,000 trillion). However, the repatriation of offshore funds only reached IDR 136.5 trillion (approx. USD $10.5 billion), or 13.6 percent of the full target (IDR 1,000 trillion), at the end of the first phase.
Apart from the tax amnesty program, data (released earlier today) showed that Indonesia's manufacturing activity expanded in September, while inflation slightly accelerated to a comfortable 3.07 percent y/y.
Overall, emerging-market assets are still attractive because central banks in Japan and the European Union remain faithful to their near-zero rates, while the US Federal Reserve refrained from tightening policy so far in 2016.
On Monday's trading day (03/10) Asian stocks were also supported by higher US stocks on Friday (30/09). Stocks on Wall Street rose as banks made a rapid recovery following the steep fall one day earlier. Investors hoped Deutsche Bank and the financial system in general were in better shape than they had feared. The Dow Jones industrial average surged 0.9 percent, the Standard & Poor's 500 index gained 0.8 percent, and the Nasdaq composite added 0.8 percent on Friday.
Trading volume was somewhat subdued as several markets are closed for a holiday, including China, South Korea, and Malaysia.