Indonesian stocks and the rupiah experienced a remarkable rebound on Monday (05/10) as global markets were relieved to see weak US jobs growth data at the end of last week. On Friday (02/10), it was announced that US September non-farm payrolls stood at 142,000, far below the market consensus of 203,000. Most investors now believe that the US Federal Reserve has too little scope to raise its key interest rate before the end of the year or even before the second quarter of 2016.
Indonesia's benchmark Jakarta Composite Index (IHSG) surged 3.23 percent to 4,343.70 today (05/10), outperforming all other Asian markets. Indonesian blue chips that made a strong performance were Bank Mandiri (+6.84 percent), Bank Negara Indonesia (+6.15 percent), Bank Central Asia (+5.68 percent), Bank Rakyat Indonesia (+5.19 percent), Astra International (+3.90 percent), and Telekomunikasi Indonesia (+3.82 percent). Listed banks on the Indonesia Stock Exchange rebounded strongly after they had tumbled last week when speculation emerged that the government is to cut lending rates of state-controlled listed companies in the third economic policy package (which is expected to be unveiled this week) in an attempt to boost credit expansion in Southeast Asia's largest economy. This move would imply that banks' profitability will be curtailed.
Jakarta Composite Index (IHSG):
Most stock indices in Asia rose, while Europe made a strong opening. Japan's Nikkei 225 Index climbed 1.58 percent (also supported by signs of progress in the Trans-Pacific Partnership negotiations hence boosting investor sentiment and yen depreciation against the US dollar on expectation of further stimulus measures from Japan's central bank), Singapore's Straits Times Index rose 2.08 percent, Hong Kong's Hang Seng Index climbed 1.62 percent. Markets in China remain closed until Wednesday for a national holiday.
Meanwhile, the Indonesian rupiah appreciated 0.98 percent to IDR 14,503 per US dollar according to the Bloomberg Dollar Index, the strongest performance in more than two weeks, while government bonds advanced. Indonesia is highly vulnerable to a US Fed Fund Rate hike as it will erode the yield advantage of Indonesia's sovereign bonds, which have the highest level of foreign ownership in Southeast Asia. The yield on the country’s government bonds due September 2026 declined 15 basis points to 9.23 percent (data from the Inter Dealer Market Association). The yield has fallen 58 basis points over the past four days.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.71 percent to IDR 14,604 per US dollar on Monday (05/10). So far this year, the rupiah has depreciated 17.4 percent against the greenback.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia