Immediately after trading opened on Tuesday morning - and in line with the performance of most other Asian stock indices - Indonesian stocks extended their losses. By 10:53 am local Jakarta time, the benchmark Jakarta Composite Index had fallen 1.07 percent to 4,720.33 points, its lowest level since April 2014. The primary reason why markets have tumbled across the globe is the severe drop in the Chinese market. Yesterday, China’s Shanghai Composite Index tumbled a staggering 8.48 percent.
Tumbling Chinese stocks on Monday (the country’s biggest one-day drop since February 2007) were caused by concerns about China’s economic condition and worries that the government of China has pulled back on measures to prop up the market, curbing public purchases of blue-chip stocks as a test to find out whether the market can stand on its own feet. If it was indeed a test, it clearly failed to show a positive outcome.
Turmoil in China spread to other Asian markets, Europe and the United States as investors are again concerned that the slowdown in global economic growth persists (concerns which also give rise to falling oil prices). On Monday (27/07) the Dow Jones Industrial Average fell 0.7 percent, the Standard & Poor's 500 Index declined 0.6 percent, and the Nasdaq Composite fell 1 percent. As such, US markets extended last week’s declines when the three aforementioned indices fell between 2 to 3 percent, each. This context also means that investors are moving into safe haven assets such as gold, dividend-heavy stocks, Japan’s yen and government bonds.
Markets are also cautious ahead of the two-day policy meeting of the US Federal Reserve (which starts today). A September US interest rate hike is still a possibility that needs to be taken into account.
There are no positive domestic factors yet that can push the Jakarta Composite Index into the green zone. In fact, the government’s decision to raise import tariffs for various consumer products may have provided additional downward pressure on Indonesian consumer stocks (and can cause accelerated inflation in Southeast Asia’s largest economy). Soon listed companies’ Q2-2015 corporate earnings reports will be released. If positive, then this can give some ammunition to Indonesian stocks to find a way back up. Investors are also keen to learn Indonesia’s July inflation rate (to be released at the start of August). In June inflation stood at 7.26 percent (y/y).
Jakarta Composite Index (IHSG):
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.05 percent to IDR 13,460 per US dollar on Tuesday (28/07).