In line with major stock indices in Asia, Indonesia’s benchmark Jakarta Composite Index rebounded directly after the opening of trade on Thursday (27/08). The index surged 2.51 percent to 4,344.11 points. Most indices in Asia were up after the US Dow Jones Industrial Average climbed nearly 4 percent on Wednesday (26/08), effectively ending a six-day losing streak, on heightened expectation that the Federal Reserve will not raise its key Fed Fund Rate yet in September. However, markets are still plagued by severe volatility.
Investors have started to doubt that the Federal Reserve will raise US interest rates in September as global markets have been plagued by remarkable volatility after China allowed its yuan to devalue, sparking concern that the economy of China is slowing faster than expected (while investors started to doubt that Chinese policymakers have the ability to overcome economic slowing). Being the world’s second-largest economy, further economic slowing of China will impact negatively on the US as well as the world economy and therefore may thwart the decision of the Federal Reserve to hike its key interest rate. William Dudley, Head of the Fed’s New York branch, said the case for a September rate hike had weakened.
Global markets have been experiencing a remarkable roller coaster ride with Chinese shares at the epicenter. In the morning of Thursday, the Shanghai Composite Index was up nearly 2.50 percent. Yesterday, the index failed to rebound despite the People's Bank of China's (PBOC) having decided to cut the country’s benchmark bank lending rate, pump USD $21.8 billion into the money market, while relaxing reserve requirements for large banks.
Indonesian stocks are also supported by large institutional investors (such as insurance and pension funds) seeking cheap stocks, while listed state-owned enterprises were allowed to start buying back shares (without requiring approval from shareholders).
The Indonesian rupiah remains under pressure due to the strong US dollar and weak commodity prices. Based on the Bloomberg Dollar Index, Indonesia's currency had weaken by 0.11 percent to IDR 14,149 per US dollar by 09:48 am local Jakarta time.