Although most stock markets in Asia were still in red territory, extending Monday's plunge, Indonesian stocks and the rupiah managed to rebound on Tuesday (05/01). Indonesia's benchmark Jakarta Composite Index rose 0.70 percent to 4,557.82 points. Meanwhile, the Indonesian rupiah appreciated 0.37 percent to IDR 13,892 per US dollar (Bloomberg Dollar Index). What happened on today's trading day and what explains the deviation between Indonesian assets and the general Asian trend?
While global uncertainty persists due to concern about China's economic slowdown, Indonesian assets were supported by the Indonesian government's decision to cut fuel prices. This move causes optimism that consumer spending in Indonesia will improve hence boosting economic activity in Southeast Asia's largest economy.
Although still being in red territory, China's Shanghai Composite Index only fell 0.26 percent on Tuesday as Chinese authorities made efforts to avert another day of heavy losses. The country's state-owned funds were ordered to purchase equities, while a selling ban was put in place on major investors (this ban will remain beyond this week's expiration date). Meanwhile, the central bank China injected 100 billion yuan into domestic markets causing a stronger yuan (against the US dollar). Limited losses in China today were copied by most other Asian indices.
On Monday a global sell-off occurred after it was reported that China's manufacturing industry continued to contract in December, while severe diplomatic tensions flared-up between Saudi Arabia and Iran. As a result China's Shanghai Index fell nearly 7 percent yesterday, followed by heavy losses in Asia, Europe and the USA. The Dow Jones Industrial Average fell 1.6 percent, S&P 500 Index declined 1.5 percent, and the Nasdaq shed 2.1 percent on Monday.
Meanwhile, Indonesia's Finance Ministry sold IDR 12 trillion (approx. USD $867 million) worth of bonds at Tuesday's auction, in line with the indicative target. However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.24 percent to IDR 13,931 per US dollar on Tuesday (05/01).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia