The benchmark stock index of Indonesia - Jakarta Composite Index (IHSG) - fell sharply on Monday (27/04) amid mixed regional stock markets. Three main factors caused the weak performance of Indonesian stocks. Firstly, several key companies posted weak first quarter corporate earnings. Secondly, Indonesia’s economic growth in the first quarter may fall below 5 percent (y/y), which would be a six-year low. Lastly, Indonesia is getting bad press around the globe due to imminent executions of convicted foreign drug traffickers.
The Jakarta Composite Index plunged 3.49 percent to 5,245.45 points on Monday, the lowest level since January 2015. Especially foreigners were eager to dump Indonesian assets on today’s trading day. Foreign net selling was recorded at IDR 1.2 trillion (USD $173 million).
Jakarta Composite Index - IHSG:
Several blue chip stocks that were sold by foreigners included Astra International (16 percent fall y/y in net profit in Q1-2015), Bank Mandiri (planning a rights issue) and Astra Agro Lestari (80 percent decline y/y in Q1-2015 net profit). Weak Q1-2015 financial performances of Indonesian companies signal that economic growth is still slowing.
Meanwhile, the heavily depreciated rupiah erodes earnings growth. Although Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.15 percent to IDR 12,922 per US dollar on Monday (27/04), it has weakened 3.9 percent so far this year against the greenback.
| Source: Bank Indonesia
Indonesian Rupiah versus US Dollar (JISDOR):
Besides companies’ weak financial results market participants are also concerned about this year’s economic growth performance of Indonesia because several ambitious government infrastructure projects have not seen groundbreaking yet. Amid sluggish global economic growth (implying weak export performance) and Indonesia's relatively high interest rate environment (curbing domestic consumption), the market has put its hope in the multiplier effect brought about by the government’s infrastructure projects. However, realization of these projects have been delayed due to various problems including financing and land acquisition.
Lastly, Indonesia has made global headlines in recent days as the Indonesian government made a 72-hours notification to several foreign drug traffickers - despite fierce international resistance - implying that the executions will be carried out soon.