Why Did Indonesian Stocks and Rupiah Weaken Today?
Contrary to expectations, Indonesian stocks and the rupiah had a weak start of the new year. On Monday (04/01) Indonesia's benchmark Jakarta Composite Index fell 1.46 percent to 4,525.92 points, while the Indonesian rupiah depreciated 0.82 percent to IDR 13,943 per US dollar (Bloomberg Dollar Index). The performance of Indonesian stocks is in line with the performance of stocks around the globe. In China stock trading was even halted twice due to its plunging index. What happened today?
China's benchmark Shanghai Composite Index plunged 6.86 percent on Monday after China's Caixin/Markit purchasing managers' index (PMI) contracted for the 10th consecutive month in December 2015 (at 48.2, below market expectations). Stock trading was halted in China (a new regulation that was announced last year) in order to avoid heavier losses. Meanwhile, China's central bank set its reference yuan rate at a more-than-4.5-year low.
Furthermore, geopolitical tension in the Middle East between Saudi Arabia and Iran heightened after a prominent Shiite Saudi cleric Nimr al-Nimr was executed. In response to the execution, the Saudi embassy in Tehran was set on fire by protesters. Saudi Arabia then said to cut all diplomatic relations with Iran, expelling diplomats.
In this context, investors are looking for safe-haven assets. Emerging market stocks fell the most in four months. Meanwhile, demand for the US dollar increased sharply, explaining the weak performance of Indonesia's rupiah today (recording its largest decline since October).
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.75 percent to IDR 13,898 per US dollar on Monday (04/01).
Indonesian Rupiah versus US Dollar (JISDOR):
| Source: Bank IndonesiaAnother side-effect of the Saudi Arabia-Iran conflict is that it managed to somewhat push up oil prices as the diplomatic tensions may disrupt the oil supply.
Jakarta Composite Index (IHSG):