There are still persistent external and internal factors that make it difficult for Indonesian stocks to rise. By 12:07 am local Jakarta time, Indonesia’s benchmark stock index (Jakarta Composite Index) was down 0.25 percent to 4,788.37 points. Meanwhile, the rupiah had appreciated 0.36 percent to IDR 13,462 per US dollar by the same time according to the Bloomberg Dollar Index. What are the external (foreign) and internal (domestic) factors that influence the performance of Indonesian assets on today’s trading day (04/08)?
Similar to what occurred yesterday, Indonesian stocks continue to be under pressure due to weak economic data from China. Yesterday (03/08), it was announced that Chinese manufacturing contracted in July, signalling that China’s economic growth remains sluggish. Being the world’s second-largest economy and the major emerging economic power in the Asian region, a slowing Chinese economy drags down regional economies. Weakening demand from China curtails the performance of Indonesian export companies (particularly commodity exports) and therefore also curtails Indonesia’s economic growth.
Indonesian stocks also feel the negative impact of lower oil prices. Crude oil fell to its lowest level since March due to concerns about the global oil supply glut as the OPEC will not cut its output. Lower petroleum prices result in declining stocks of energy companies. On Monday (03/08), the Dow Jones Industrial Average fell 0.3 percent, primarily on weakening energy stocks.
Investors are also cautious ahead of the official Q2-2015 GDP growth figure that is to be released by Statistics Indonesia shortly. In the first quarter of the year, Indonesia’s economic growth slowed to a six-year low of 4.71 percent (y/y). There is a serious possibility that the economy slowed further in the second quarter.
Yesterday (03/08), Statistics Indonesia announced that July inflation remained at 7.26 percent (y/y). Most analysts actually expected that inflation would have eased as consumer spending was assumed to have slowed during this year’s Ramadan month and Idul Fitri festivities due to people’s weaker purchasing power. Moreover, it was reported that Indonesia’s manufacturing activity had contracted for the 10th consecutive month in July 2015.
Meanwhile, the Indonesian rupiah appreciated against the US dollar on Tuesday morning (04/08). This performance is due to the weaker US dollar after US manufacturing, released yesterday, was below expectation, while US construction spending rose at the slowest pace in five months. This somewhat reduced investors’ expectation that the Federal Reserve will raise its interest rate regime in September (a move that will lead to capital outflows from emerging economies including Indonesia).
The rupiah has also been supported by the central bank’s intervention. Yesterday (04/08), Perry Warjiyo, Deputy Governor at Bank Indonesia, confirmed that the central bank will continue to intervene in the market to stabilize the rupiah. As a result the country’s foreign exchange reserves decline.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.02 percent to IDR 13,495 per US dollar on Tuesday (04/08).