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Indonesian stocks and the rupiah had a bad start on Monday morning. By 09.35 am local Jakarta time, Indonesia’s benchmark Jakarta Composite Index had fallen 0.99 percent to 4,371.49 points, while the rupiah had depreciated by 0.45 percent to IDR 14,236 per US dollar (Bloomberg Dollar Index).
Indonesian stocks and the rupiah are slightly down on Friday afternoon (04/09). Similar to yesterday it is a relatively quiet trading today (possibly caused by closed markets in Shanghai hence curtailing the spread of severe volatility). By 15:20 pm local Jakarta time the benchmark Jakarta Composite Index was down 0.48 percent to 4,411.99 points while the Indonesian rupiah had depreciated 0.07 percent to IDR 14,180 per US dollar (based on the Bloomberg Dollar Index).
Indonesia has cancelled further development of the multi-billion high-speed railway between the capital city of Jakarta and Bandung (West Java) as President Joko Widodo decided that Indonesia does not need a train that can reach speeds of over 300 km per hour on the relatively short route (150 km) between both cities. Besides the short distance, there will also be around 14 stations constructed between both terminal stations, implying that the train needs to hit the brakes before it can reach its maximum speed.
Global markets are again facing rough times after China’s manufacturing activity fell to a three-year low in July 2015, yet another sign that the world’s second-largest economy is slowing faster than earlier estimated (and this surely impacts negatively on the global economy). Concerns about China led to plunging stock indices from Japan to New York on Tuesday (01/09). Moreover, International Monetary Fund (IMF) Managing Director Christine Lagarde, who is on a visit in Indonesia, said the IMF may soon cut its forecast for global economic growth in 2015 again (from 3.3 percent currently).
In line with nearly all other Asian stock markets, Indonesia’s benchmark Jakarta Composite Index (IHSG) plunged 2.15 percent to 4,412.46 points on Tuesday (01/09). After Asian trade had closed European and US indices also plummeted severely. The main reason is today’s announcement that China’s manufacturing fell to a three-year low in August 2015, yet another sign that China’s economic growth is declining faster than estimated. The country’s manufacturing PMI dropped to 49.7 in August from 50.0 in July (a reading below 50.0 indicates contraction).
According to the latest rumours, the government of Indonesia tends to favour China to build the nation's first high-speed railway that will connect the capital city of Jakarta and Bandung in West Java. Over the past weeks, the ‘battle’ between China and Japan over who will be awarded the contract to construct the high-speed and high-profile railway between both cities (worth approx. USD $5 billion) heightened.
Most Asian stock markets are strengthening on Friday after indices on Wall Street rose yesterday on strong US economic growth. The US economy grew 3.7 percent (y/y) in the second quarter of 2015 (much higher than the 2.3 percent estimated previously). As a result, the Dow Jones Industrial Average surged 2.27 percent while global oil prices rebounded over 10 percent on Thursday (27/08).
In line with major stock indices in Asia, Indonesia’s benchmark Jakarta Composite Index rebounded directly after the opening of trade on Thursday (27/08). The index surged 2.51 percent to 4,344.11 points. Most indices in Asia were up after the US Dow Jones Industrial Average climbed nearly 4 percent on Wednesday (26/08), effectively ending a six-day losing streak, on heightened expectation that the Federal Reserve will not raise its key Fed Fund Rate yet in September. However, markets are still plagued by severe volatility.
The Indonesia Stock Exchange (IDX) announced today (25/08) that it has curtailed the daily limit on share price losses to ten percent. This means that shares of listed Indonesian companies on the IDX can fall up to a maximum of 10 percent per day (from the range of 20 to 35 percent previously). This revised regulation aims to cushion the negative effects of current high (global) market volatility. Yesterday (‘Black Monday’), the Jakarta Composite Index fell to a 20-month low. The cap on upper price movements remains 20-35 percent per day.
Most analysts expected that Indonesia’s benchmark stock index (Jakarta Composite Index) would be plagued by another selloff on Tuesday (25/08) as the major stock indices in the USA and Europe plunged yesterday, while commodity prices hit new lows (crude oil fell below USD $40 per barrel for the first time since 2009). Moreover, Shanghai and Japan opened in the red. However, reality proves differently. Around 11:25 am local Jakarta time the Jakarta Composite Index was up 1.77 percent to 4,237.28 points.
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Broad activity in the financial markets has been limited over the last few weeks, as holiday-thinned trading conditions have slowed volatility in most of the commonly watched assets. A large part of the reasoning behind this can be seen in the fact that market moving news headlines have not been seen and most investors are still looking for ways to identify the most likely direction to follow in the equities space.
After having experienced two consecutive months of deflation in September and October, Indonesia is expected to see inflation again in November, primarily on higher food prices (chicken meat and rice). Agus Martowardojo, Governor of Bank Indonesia, expects an inflation rate of 0.2 percent (month-on-month) in November. This would mean that inflation in full-year 2015 is likely to reach 3 percent (y/y), in line with earlier estimates and within - or perhaps slightly below - Bank Indonesia's target range of 3 - 5 percent (y/y) of inflation in 2015.
Indonesia's economic performance in the third quarter of 2015 was a bit disappointing as the 4.73 percent year-on-year (y/y) growth pace in Q3-2015 was slightly below market expectations at 4.8 percent (y/y). On a positive note, however, Indonesia's gross domestic product (GDP) growth accelerated from the six-year low of 4.67 percent (y/y) in the preceding quarter. A look at the table below shows that Indonesia's third quarter GDP growth rarely outpaces growth in the second quarter. This is a hopeful sign indeed.
Today (22/10), the World Bank released the October 2015 edition of its flagship Indonesia Economic Quarterly, titled "In Times of Global Volatility". In the report the World Bank states that despite current ongoing global uncertainties (caused by looming monetary tightening in the USA and China's economic slowdown), which make macroeconomic management difficult in the year ahead, pro-active government action could offset the negative impact and may help to boost growth.
Last week it was officially announced that China Railway International Co. Ltd, subsidiary of China Railway Group Ltd, together with a consortium consisting of Indonesian state-owned enterprises (which include Pilar Sinergi BUMN Indonesia, Wijaya Karya, Kereta Api, and Jasa Marga) will build Indonesia's first ever high-speed railway, valued at over USD $5 billion, between the capital city of Jakarta and Bandung (in West Java), a route that stretches for approximately 150 km.
Indonesia's heavily depreciated rupiah makes it more difficult for Indonesians to study abroad or to send their children to universities abroad without having the financial aid in the form of a scholarship. For those that are thinking of making such a decision, they need to take into account the performance of the Indonesian rupiah as well as the inflation outlook in the country of destination. So far in 2015, the Indonesian rupiah has depreciated 18 percent against the US dollar, 9 percent against the euro, 14 percent against China's yuan, and 2.4 percent against the Australian dollar.
China has won a contract to build a high-speed railway between Indonesia's capital city of Jakarta and Bandung (West Java), beating Japan along the way. Earlier this month, the Indonesian government unexpectedly decided to decline proposals from Japan and China for the construction of a multi-billion high-speed railway between both cities as these proposals included financial assistance or a guarantee from the Indonesian government. Moreover, Indonesia considered a super-fast train unnecessary on the relatively short route (150 km).
For those who follow Indonesian stock markets, it is no mystery that the trend have not been encouraging or supportive in the year 2015. Several important stock benchmarks that track equity performance for the region show year-to-date losses of 30% or more, and this has led many investors to steer clear of the emerging markets space until things start to stabilize.
In the latest update of its flagship publication Asian Development Outlook 2015, the Asian Development Bank (ADB) said softer economic growth prospects of China and India in combination with slow recovery in the major industrial markets were reason why the ADB has cut its economic growth forecast for developing Asia in 2015 and 2016. The ADB now estimates GDP growth in developing Asia at 5.8 percent (y/y) in 2015 and 6.0 percent (y/y) in 2016, down from previous GDP growth forecasts of 6.3 percent (y/y) for both years.
Global credit rating agency Moody’s Investors Service cut its forecast for economic growth in Indonesia this year from five percent (y/y) to 4.7 percent (y/y) due to the perceived hard landing of China’s economy in combination with sluggish conditions in Japan and the Eurozone. Weak demand from China, the world’s second-largest economy and the top trading partner of Indonesia, is expected to continue to plague Indonesian exports and earnings.
