Indonesian stocks and the rupiah continued to weaken on the first trading day of the week, especially due to negative global market sentiments. China’s Shanghai Composite Index tumbled a staggering 8.48 percent on Monday (27/07), its worst daily percentage fall since February 2007. Furthermore, Wall Street closed broadly lower on Friday (24/07) for the fourth straight day. Meanwhile, the Indonesian rupiah continued to depreciate against the US dollar, making Indonesian assets unattractive to foreign investors.
The severe decline of Chinese stocks in the benchmark Shanghai Composite Index (dragging down other Asian stock indices) was caused by concerns about China’s economic conditions and worries that Chinese authorities are pulling back on measures to prop up the market. It was speculated today that China’s government curbed purchases of blue-chip stocks as a test to find out whether the market can stand on its own feet. As such, the sharp drop today shows the current fragile state of the Chinese stock market. Providing more downward pressure are data that showed China’s industrial profits declined 0.3 percent in June from one year ago (after having risen over the previous two months), and that China’s July factory sector contracted (48.2) the most in 15 months as shrinking orders depressed output. The performance of Chinese stocks in the next few weeks will depend a lot on Q2-2015 corporate earnings reports which are set to be released soon.
Wall Street closed lower at the end of last week as weak quarterly results and outlooks of several large US companies weighed on the market, dragging down indices in the East. Meanwhile, markets are still expecting to see a US interest rate hike before the year-end. Such a hike is expected to cause capital outflows from emerging markets. The Federal Reserve will start its two-day policy meeting on Tuesday (28/07) to discuss its monetary strategies.
Indonesia’s benchmark Jakarta Composite Index fell 1.76 percent to 4,771.29 points on Monday (27/07).
Jakarta Composite Index (IHSG):
Meanwhile, the Indonesian rupiah depreciated 0.12 percent to IDR 13,463 per US dollar according to the Bloomberg Dollar Index. The US dollar gained more bullish momentum due to softening commodity prices (particularly crude oil).
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.04 percent to IDR 13,453 per US dollar on Monday (27/07).