Although most Asian stocks were in red territory today, Indonesian stocks tumbled the deepest. Indeed, considering foreign holdings of Indonesian stocks and bonds are high (around 40 percent of the total), Indonesian assets are usually hit harder by capital outflows than assets of peer emerging markets in Asia when times of global turmoil emerge. Besides the rising US treasury yields, markets are also bracing for four Fed rate hikes (instead of three) this year.

But besides these external factors, we assume there is also an internal factor at play here that causes Indonesian stocks to plunge more severely than those of peer emerging markets. Considering recent capital outflows from Indonesia (and pressures on the Indonesian rupiah), there is rising expectation that Bank Indonesia will raise its benchmark interest rate at the May policy meeting. The country's benchmark rate is now at 4.25 percent. However, for foreign investors this is seemingly not attractive enough. Although a higher benchmark interest rate should give support to a stronger rupiah, it causes pressure for stocks because listed companies' future outlook becomes less bright.

This could also explain why the Indonesian rupiah appreciated 0.22 percent to IDR 13,891 per US dollar (Bloomberg Dollar Index) on Thursday (26/04). Most currencies are depreciating amid broad US dollar strength. Besides expectations of a rate hike in Indonesia, another explanation could be that Bank Indonesia is still active in markets. Earlier this week the central bank of Indonesia confirmed that it intervened in markets with the aim to support the fragile rupiah (by buying bonds and by selling foreign currency).

Meanwhile, corporate earnings in the first quarter of 2018 have been disappointing so far, indicating that Indonesia's household consumption and economic growth are yet to improve significantly. After seeing sliding net profit of Unilever Indonesia and Astra International earlier this week, today Indonesian cigarette maker HM Sampoerna reported it saw net income fall 7.9 percent year-on-year (y/y) to IDR 3.03 trillion (approx. USD $218 million) in Q1-2018.

Update - 17:30 pm local Jakarta time (26/04/2018)

Local media report that Indonesian President Joko Widodo ordered a meeting on Thursday afternoon with Bank Indonesia Governor Agus Martowardojo, Financial Services Authority Chairman Wimboh Santoso, Coordinating Minister for Economic Affairs Darmin Nasution, Finance Minister Sri Mulyani Indrawati, and State-Owned Enterprises Minister Rini Soemarno. It is assumed that the fragile rupiah and dive of the Jakarta Composite Index are to be discussed.

Meanwhile, Reuters reports that Bank Indonesia will hold a news conference on the development of the rupiah currency at 09:30 GMT today. This could mean that Bank Indonesia will not wait until its May policy meeting to implement an interest rate hike.