Most Asian stocks are rising on the back of an upbeat finish on Wall Street overnight as geopolitical risks are easing and economic data are good. For example, China's exports surged 21.5 percent year-on-year (y/y) in April, bouncing back from a contraction that was recorded in the previous month. This gives rise to optimism about strengthening global demand and easing concerns about a global trade war.

However, Indonesian stocks are showing a substantial sell-off today and the question is why. In international and domestic media the weak performance of Indonesian stocks is blamed on the 5.06 percent (y/y) Q1-2018 GDP growth rate that was released yesterday morning. However, this would be an awkward and very late reaction because markets had plenty of time to respond to Indonesia's GDP data on yesterday's trading day. And, in fact, yesterday the Jakarta Composite Index surged 1.60 percent, hence a very positive response that is primarily supported by domestic investors.

More likely today's sell-off is caused by the weak rupiah that has passed beyond the psychological boundary of IDR 14,000 per US dollar earlier this morning. Significant pressures on the rupiah would imply that Bank Indonesia is set to raise its benchmark interest rate at the May policy meeting. Such rate hike would strengthen the value of the rupiah, but weaken the value of stocks.

Today, Indonesian rupiah passed beyond IDR 14,000 per US dollar for the first time since December 2015. Besides broad-based US dollar strength (due to US monetary tightening) additional pressures stem from the conversion (by foreign investors) of rupiah-denominated dividend and interest payments from stocks and bonds into US dollars. This is a seasonal phenomenon in the April-May period.

The rupiah had depreciated 0.30 percent to IDR 14,043 per US dollar by 12:33 pm local Jakarta time on Tuesday (08/05) according to the Bloomberg Dollar Index. Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.57 percent to IDR 14,034 per US dollar.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia