Stock Market & Rupiah Update Indonesia: Bad Day at the Office
Again Asian stock markets went into deep red territory. Japan officially entered a bear market (the Nikkei 225 Index plunged 3.71 percent today), Singapore's benchmark Straits Times Index hit a more than four-year low after declining nearly 3 percent, while Philippine stocks dropped to a near-oversold level after falling 1.53 percent. At first Indonesia's benchmark Jakarta Composite Index managed to limit losses. However, towards the end of Wednesday's trading day pressure became too much, hence dropping 1.42 percent.
Weak global oil prices remain the main cause for concern and trigger a selloff in energy and energy-related stocks. On Wednesday (20/01) crude oil prices hit a fresh 12-year low below the USD $28 per barrel level. Low oil prices are a symptom of the weak global economy, led by the economy of China that is expanding at a 25-year low growth pace (6.9 percent in 2015).
Moreover, the International Monetary Fund (IMF) announced on Tuesday (19/01) that it had revised down its forecast for global economic growth in 2016, highlighting a slowdown in emerging markets. According to the Washington-based institution, global growth will reach 3.4 percent (y/y) in 2016, down from its earlier projection of 3.6 percent (y/y). In 2017 it expects the global economy to expand by 3.6 percent (which is down from its earlier projection of 3.8 percent). On a positive note, these forecasts are better than estimated global economic growth in 2015 at 3.1 percent (y/y).
The International Energy Agency stated that the oil market may end up drowning in an oversupply if no changes occur. Oil production in both the USA and OPEC member countries remain high, while the lifting of sanctions on Iran is expected to add another 300,000 barrels per day to the supply glut later this quarter.
The economic slowdown of China has a major impact on the oil price as the world's second-largest economy is estimated to account for 12 percent of the world's oil consumption. China is transforming into to a less energy-intensive economic model and therefore weak oil demand is structural.
Indonesia's benchmark Jakarta Composite Index fell 1.42 percent to 4,427.98 points on Wednesday.
Jakarta Composite Index (IHSG):
Also the Indonesian rupiah felt the negative effects of risk aversion amid worldwide economic turmoil. The US dollar is one of the safe havens that is sought after by investors. The rupiah depreciated 0.81 percent to IDR 13,964 per US dollar on Wednesday (Bloomberg Dollar Index). However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.18 percent to IDR 13,896 per US dollar. Tomorrow, we expect the JISDOR to weaken sharply as it absorbs today's events.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia