Most analysts expected that Indonesia’s benchmark stock index (Jakarta Composite Index) would be plagued by another selloff on Tuesday (25/08) as the major stock indices in the USA and Europe plunged yesterday, while commodity prices hit new lows (crude oil fell below USD $40 per barrel for the first time since 2009). Moreover, Shanghai and Japan opened in the red. However, reality proves differently. Around 11:25 am local Jakarta time the Jakarta Composite Index was up 1.77 percent to 4,237.28 points.
Asian markets are experiencing a real roller coaster ride. After heavy losses on Monday in Asia (effectively entering a bear market), several indices show a remarkable recovery today. These markets are supported by a rise in US stock index futures (making investors ignore further falls of Chinese stocks) and experience a technical rebound as several indices have become oversold and investors are thus hunting for bargains.
Regarding Indonesian stocks caution is still required as these stocks are still relatively expensive. Indonesia is trading at about 11.8 times forward earnings, roughly 7.3 percent higher than its average.
Japan’s Nikkei 225 Index plummeted over 4 percent on Tuesday morning but recovered to +1.1 percent at the end of the first trading session. Hong Kong’s Hang Seng Index was up around one percent, South Korea’s KOSPI Index was up 1.47 percent, and Singapore’s Straits Times Index rose 1.52 percent.
The main exception is China’s Shanghai Composite Index. After falling nearly 8.50 percent on Monday, the index was down by 4.33 percent midway through Tuesday’s trading day.
Yesterday, the world experienced ‘Black Monday’ as stock indices across the globe suffered from severe losses on concern about further slowing economic growth in China, the world’s second-largest economy, and its impact on the global economy. China's recent yuan devaluation also hurt markets (giving rise to a currency war in Asia) and triggered concern about the US manufacturing sector. Investors on the Shanghai Composite Index did not respond positively to the news that Chinese policymakers decided to allow the national pension fund, which has about USD $550 billion in net assets, to buy equities.
Concerns also arose as crude oil prices fell further, slipping below USD $40 per barrel (for the first time since 2009) after Chinese manufacturing data was weak and raised concern about China’s economic slowdown. China is the world’s top energy consumer.
Amid current turmoil, Indonesia’s Finance Ministry announced it considers to issue yuan-denominated sovereign bonds (to finance the state budget) as it seeks to diversify financing resources while tapping lucrative markets and savings in China. However, Robert Pakpahan, the Finance Ministry's Director General of Financing and Risk Management, did not give any indication about the timing of this bond issuance.
Furthermore, Indonesian State-Owned Enterprises Minister Rini Soemarno said that Indonesia’s state-owned enterprises (SOEs) are to spend IDR 10 trillion (approx. USD $712 million) to buy back shares on today’s trading day. A recently introduced regulation allows state-controlled listed firms to buy back shares in order to curb excessive market volatility.