Contrary to mostly rising Asian and global stock indices, Indonesia’s benchmark Jakarta Composite Index (IHSG) fell 0.34 percent to 4,332.51 points on Wednesday (16/09) as the rupiah continues to slide against the US dollar causing concern about corporate earnings of listed companies on the Indonesia Stock Exchange and eroding the value of Indonesian assets purchased by foreign investors. Outside Indonesia most markets were up as investors are in anticipation of a crucial two-day Federal Reserve policy meeting (16-17 September).
In US dollar terms, the Jakarta Composite Index (abbreviated IHSG) is now the worst performing emerging stock index in Asia. Reportedly, Bank of America Merrill Lynch estimates that foreign investors sold USD $937 million worth of Indonesian stocks between 20 July and 11 September, while 10-year government bond yields have climbed 1.46 percent this year. Bank of America Merrill Lynch estimates that foreigners sold USD $797 million worth of Indonesian bonds in the same period (20 July and 11 September). Capital outflows from Indonesia are expected to continue, particularly if the Federal Reserve hikes its Fed Fund Rate this month. Since 2009, foreign investors have piled a cumulative USD $9.9 billion in Indonesian stocks and USD $42 billion in Indonesian bonds, implying there are still large quantities of funds that can be retracted from Indonesia’s markets.
Jakarta Composite Index (IHSG):
Yesterday (15/09), US stocks rose sharply on Wall Street as expectations of the first US interest rate hike since 2006 heightened (the US central bank's Federal Open Market Committee, or FOMC, will announce its interest rate decision on Thursday afternoon).
Today, Asian stocks followed Wall Street. China’s benchmark Shanghai Composite Index, still plagued by severe volatility, surged 4.89 percent. Meanwhile, Japan’s Nikkei 225 Index climbed 0.81 percent in thin trading. In Europe, stocks opened higher as well.
Negative sentiments in Indonesia persist due to ongoing rupiah weakness. Even with the support of Indonesia’s central bank the currency continues to weaken against the greenback. Today (16/09), the rupiah depreciated 0.35 percent to IDR 14,459 per US dollar according to the Bloomberg Dollar Index. Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.49 percent to IDR 14,442 per US dollar. So far this year, the rupiah has weakened 16 percent against the greenback hence being the second-worst performing Asian currency in 2015 (after Malaysia’s ringgit).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Investors are also concerned that the already strong US dollar (which will become stronger after a Fed Fund Rate hike) will be a major concern for those Indonesian companies that have US dollar-denominated debt.
When will the Federal Reserve raise its Fed Fund Rate?
Voting possible: -
- Next Year (39.2%)
- In December (36.5%)
- In October (12.2%)
- I don't know (12.2%)
Total amount of votes: 181