Indonesian Stocks & Rupiah Remain in Red Territory
Emerging market assets in Asia remained under pressure on Thursday (16.05.2019), with risk appetite being particularly undermined by rising concerns over USA-China trade tensions.
Earlier on the day, Indonesia's benchmark Jakarta Composite Index was down by nearly 1.50 percent. However, as we are moving toward the end of the trading day there has been an improvement. By 14:45 pm local Jakarta time on Thursday (16.05.2019) Indonesia's benchmark index was down 0.51 percent at 5,950.67 points.
On Wednesday (15.05.2019) the US Commerce Department announced that it is adding Huawei and 70 affiliates to its "entity list", meaning the telecom giant is banned from purchasing parts and components from US companies without government approval (hence curbing Huawei's access to the US market and US suppliers).
Over the past weeks concern over the USA-China tariff war have been heightening after US President Donald Trump announced - in early May 2019 - that the USA would more than double tariffs on USD $200 billion of Chinese goods because China “broke the deal and tried to renegotiate”. China immediately announced plans to retaliate against the US duty increases. Hence, a sharp escalation of the tariff war has been witnessed that is causing uncertainty across global financial markets.
This is in stark contrast to the situation in April 2019 when the USA and China seemed committed to find a solution to end the tariff war.
Besides the trade tensions, Indonesian assets are also negatively affected by Indonesia's wide monthly trade deficit in April 2019 as well as political uncertainties. Richard van der Schaar, Managing Director of Indonesia Investments, said "Indonesia's April trade deficit was reportedly the biggest monthly trade deficit in more than a decade as exports plummeted much steeper than imports. Subdued global economic expansion causes subdued global demand as well as falling commodity prices, while imports of consumer goods into Indonesia actually rose sharply on a month-on-month basis due to the Ramadan month, a month when consumption typically peaks."
Van der Schaar added that political tensions remain simmering in Indonesia as controversial presidential candidate Prabowo Subianto already announced that he is to reject the official election results that are to be released by the General Elections Commission (KPU) later this month. Based on the unofficial quick counts and exit polls incumbent President Joko Widodo is the winner of the 2019 presidential election. However, Subianto and his following claim that the results are invalid due to widespread fraud and they are therefore expected to try and organize demonstrations to put pressure on society. This situation implies a continuation of political uncertainties in Indonesia, and is surely negative for the country's investment climate. In recent quarters foreign direct investment into Indonesia had already been contracting, most likely because investors are careful ahead of the elections. It is also assumed that short-term portfolio investors remain wary until the political situation becomes clear.
Meanwhile, and as expected, Indonesia's central bank (Bank Indonesia) left its benchmark interest rate unchanged at 6.00 percent (for the sixth consecutive month) on Thursday (16.05.2019). The deposit facility and the lending facility rates were held at 5.25 percent and 6.75 percent, respectively.
The Indonesian rupiah stabilized after recent losses. Based on the Bloomberg Dollar Index, the rupiah had depreciated 0.04 percent to IDR 14,469 per US dollar by 14:45 pm local Jakarta time on Thursday (16.05.2019).
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