Asian stock indices - including Indonesia's benchmark Jakarta Composite Index which reopened after a market holiday - were mostly in red territory on Thursday (10/12) as investors are cautious ahead of the looming US interest rate hike, expected to be decided upon at the Federal Reserve's next policy meeting (15-16 December), as well as low oil prices and falling US stocks overnight. Moreover, the central bank of China allowed its yuan to depreciate further (to a near four-month low), hence resulting in the resurgence of some fears of a currency war in Asia.
Despite being mostly in red territory on today's trading day, the Jakarta Composite Index ended 0.05 percent higher due to a rebound just before the market closed.
IPOs on the Indonesia Stock Exchange
Two companies were welcomed on the Indonesia Stock Exchange (IDX) today. Construction firm Indonesia Pondasi Raya (Indopora) and boiler manufacturer Ateliers Mecanique D'Indonesie (Atmindo) listed on the IDX. While shares of Indopora rose 15.2 percent, Atmindo's shares fell 3.1 percent on their trading debuts.
Jakarta Composite Index (IHSG):
The Indonesian rupiah and stocks are regarded being among the most fragile emerging market assets in case the Federal Reserve decides to raise interest rates next week for the first time in almost one decade. Indonesian stocks and the rupiah are vulnerable to a Fed Fund Rate hike as Indonesia is still plagued by a wide current account deficit, sluggish economic growth, and low commodity prices. So far this year, foreign investors sold USD $1.5 billion worth of Indonesian shares.
Today the central bank of Indonesia said it expects the country's current account deficit to widen to 2.7 percent of gross domestic product (GDP) in 2016, higher than the estimated 2 percent of GDP this year. The central bank expects the deficit to widen in 2016 due to accelerated economic growth (as this is expected to boost imports into Indonesia in 2016). This year the current account deficit has improved markedly, primarily on sharply falling imports amid slowing economic growth, a weak rupiah and falling purchasing power.
Bank Indonesia also said it may cut its relatively tight interest rate regime (with the benchmark interest rate currently at 7.50 percent) despite the looming Fed Fund Rate. Bank Indonesia's Senior Deputy Governor Mirza Adityaswara said such a move depends on Indonesia's financial stability. The next policy meeting of Bank Indonesia is on 17 December, one day after the Federal Reserve's policy meeting has ended. However, we believe chances are very small that Bank Indonesia will cut its interest rate in the last policy meeting of 2015.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.73 percent to IDR 13,954 per US dollar on Thursday (10/12).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia