Stocks in Asia were mostly up on Tuesday (12/04) supported by the weaker Japanese yen (retreating after a seven-day rally again the US dollar) and rising commodity prices (with crude oil touching a 2016 high at USD $43 per barrel after the US dollar weakened). Indonesia's benchmark Jakarta Composite Index rose 0.89 percent to 4,829.57 points, while the rupiah appreciated 0.14 percent to IDR 13,115 per US dollar (Bloomberg Dollar Index). Several analysts claim that the positive performance of Indonesian assets was also due to the government's plan to cut the corporate income tax to 20 percent and raise the non-taxable personal income tax by 50 percent.
In a meeting with Indonesia's parliamentary commission that oversees taxes on Monday (11/04), Indonesian Finance Minister Bambang Brodjonegoro announced the government's intention to cut the nation's corporate income tax rate from 25 percent currently to 20 percent in a bid to create a more competitive business climate and attract investment, hence discouraging local companies from seeking profits in lower tax markets (for example Singapore).
The Indonesian government also announced a plan to raise people's non-taxable income by 50 percent from IDR 36 million (approx. USD $2,727) to IDR 54 million (approx. USD $4,090) in an effort to strengthen people's purchasing power and encourage household consumption.
Oil prices remain volatile ahead of the meeting in Doha on Sunday 17 April 2016. At this occasion the world's leading crude oil producers - including Saudi Arabia and Russia - will discuss an "oil output freeze" in a bid to boost prices. Iran, however, stated it will continue boosting oil output up to 4 million barrels per day. Brent crude climbed 1 percent to USD $43.24 per barrel, a four-month high, while West Texas Intermediate (WTI) rose 0.7 percent to USD $40.63 per barrel today. A weakening US dollar always boosts commodity prices, hence giving rise to investor appetite for riskier (emerging market) assets.
More than USD $20 billion of funds went into emerging markets local currency bonds and stocks so far in 2016. This risk sentiment is mainly fueled by speculation that the US Federal Reserve will not raise its key Fed Fund Rate too soon (and too aggressively. However, there are doubts whether this rally can continue because there is still a high degree of uncertainty going on in markets due to China's economic slowdown. Yesterday, the World Bank trimmed its forecast for economic growth in developing Asia and the Pacific. Today, the International Monetary Fund (IMF) is scheduled to release an updated World Economic Forecast, which may also involve a downward revision of the institution's global growth projection.
East Asia and Pacific - World Bank's GDP Growth Projections:
|Developing East Asia & Pacific||6.8||6.5||6.3||6.2||6.2|
Source: East Asia Pacific Economic Update, April 2016: Growing Challenges
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.08 percent to IDR 13,123 per US dollar on Tuesday (12/04).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
The Finance Ministry of Indonesia announced today that it sold IDR 18 trillion (approx. USD $1.37 billion) worth of bonds at an auction on Tuesday, above the indicative target of IDR 12 trillion. Total incoming bids were recorded at IDR 32.03 trillion, nearly double the IDR 16.05 trillion received in the previous auction.