Stormy May for rupiah, stocks
The rupiah and Indonesian stocks ended their worst month since November on Thursday, as foreign investors dumped risky assets for safer instruments on re-emerging eurozone fears.
The nation’s currency touched Rp 9,643 to the US dollar early on Thursday, its weakest level since October 2009, before trading at Rp 9,437 as of 4:24 p.m., according to prices from local banks compiled by Bloomberg.
The rupiah plunged 2.7 percent in May as international funds dumped Rp 7.7 trillion in stocks and Rp 4.3 trillion in government bonds.
“May 2012 has been a tough month for the market as marked by eroding foreign capital flow,” Bank Mandiri chief economist Destry Damayanti said.
“All is moving wildly — the rupiah, global market. Volatility is very high,” Mandiri Sekuritas technical analyst Rafdi Prima said, citing a “lack of confidence” to enter the local market due to high-level global uncertainties.
Elsewhere, Asian currencies had their biggest monthly loss since September, with the Bloomberg-JPMorgan Asia Dollar Index losing 2.7 percent in May after global funds pulled $7.8 billion from South Korean, Taiwanese and Indonesian stocks.
Emerging market stocks also headed for their worst May since 1998, with the MSCI Emerging Markets Index slumping 12 percent.
In Indonesia, the benchmark stock Jakarta Composite Index (JCI) suffered its steepest drop in seven months on Thursday, sinking 2.2 percent to 3,832.8. The index gauge lost 8.3 percent in May and neared its level at the beginning of 2012, almost scrapping this year’s gains.
“Of course [stocks] have been oversold. But, investors are still having doubts if the market will go up. There’s a lack of confidence to enter the market,” Rafdi said.
Spain’s banking crisis, a potential Greek euro exit, as well as China’s and India’s lower-than-expected economic growth are spooking investors that the global economic recovery will stall, sapping demand for risky assets like those of emerging markets.
“The main theme driving the market is that of seeking safe havens such as US treasuries or German bonds,” said Siswa Rizali, who helps manage about $418 million at Jakarta-based Andalan Artha Advisindo Sekuritas, as quoted by Bloomberg.
“Our market has been hit worse because we outperformed most of the region last year.”
Higher demand for foreign currencies by investors to realize investment gains exacerbated the rupiah’s depreciation, affecting the nation’s financial markets, Finance Minister Agus Martowardojo said.
“The depreciation is [also] caused by higher foreign-currency demand to repatriate dividends and coupon payments,” Agus told a meeting with lawmakers from House of Representatives’ Commission XI overseeing banking and financial affairs.
Bank Indonesia (BI) will start issuing one-day to one-month dollar term deposits — a deposit-like investment instrument for banks to invest their foreign currencies at the central bank — hoping to bolster the US-dollar supply in the market and stabilize the rupiah.
Such moves would complement the central bank’s $116.4 billion foreign exchange reserves that have been used to intervene in the financial market to calm volatility in the rupiah, BI deputy governor Hartadi A. Sarwono said.
“Our reserves are huge and sufficient. We are not concerned about this situation, because it seems that until yesterday, we have kept wild volatility under control,” BI governor Darmin Nasution told the lawmakers.
Bank Internasional Indonesia economist Juniman said central bank intervention was key to boosting investor confidence and avoiding panic selling. “With the eurozone crisis approaching Spain, pressures are heavier on emerging market currencies,” Juniman said.
“BI needs to be in the market and stabilize the rupiah,” he added, citing the Rp 9,500 per US dollar level which the rupiah might hover around until the end of this year.
BI deputy governor Hartadi A. Sarwono vowed that the central bank would keep adding US dollars to the market if necessary.
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