Meanwhile, a series of terrorist attacks in Surabaya and Riau over the past couple of days added negative sentiments for Indonesian assets. On Sunday morning (13/05) three churches were the target of suicide bombers in Surabaya. The next day suicide bombers attacked Surabaya's police headquarters. This morning (16/05), five terrorists tried to kill police officers in Riau's police headquarters (one officer was killed in the attack). The four terrorists in the Riau attack were shot dead by police, while the fifth one was arrested.

Including a bomb in a Sidoarjo apartment complex (which presumably went off prematurely) the total number of deaths reached 26 people, including 13 militants and their children.

Within this context - where foreign investors show a flight to safety, thus dumping emerging market assets - India and Indonesia are the two nations that see the majority of foreign outflows in the Asian region. Presumably not a coincidence, both these countries have the highest current account deficits in the region.

The Indonesian rupiah weakened 0.43 percent to IDR 14,097 per US dollar (Bloomberg Dollar Index) on Wednesday (16/05), a 31-month low. Meanwhile, the yield on Indonesia's benchmark 10-year government bonds rose 12 basis points (bps) to 7.217 percent. Net outflows from Indonesia's rupiah-denominated bonds have totaled USD $2.3 billion since the end of March. Indonesia's weaker-than-estimated trade deficit in April 2018 (at USD $1.63 billion) is also adding pressures onto the rupiah.

Another issue - one that is giving rise to geopolitical concerns - is the news that North Korea canceled high-level talks with neighboring South Korea on Wednesday (16/05) because the latter continues to be engaged in military exercises with the USA. Serious doubts have now emerged on whether the historic summit with North Korean leader Kim Jong Un and US President Donald Trump will go-ahead as planned on 12 June 2018.

Contrary to Indonesian bonds and the rupiah, the benchmark Jakarta Composite Index ended slightly in green territory (+0.06 percent) on Wednesday (16/05) after recovering from deep red territory that was touched earlier in the day. Indonesian stocks have been sliding significantly over the past couple of weeks and now have actually become quite attractive, especially for long-term investors. So far in 2018 foreign investors have been net sellers of about USD $2.9 billion of Indonesian stocks, implying that Indonesian equities are the worst performer in Asia so far this year.

Meanwhile, the central bank of Indonesia (Bank Indonesia) is scheduled to conclude its monthly monetary policy on Thursday (17/05). We expect Bank Indonesia to raise its benchmark interest rate (the 7-Day Reverse Repo Rate) from 4.25 percent to 4.50 percent in an effort to support the Indonesian rupiah that has been under heavy pressure in recent weeks. In theory a rate hike is negative for stocks. However, we would not be surprised to see Indonesian stocks react positively to a rate hike tomorrow.