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Stocks dip as slow growth, high inflation spook investors
The local stock market index dropped to its lowest level in almost a month on Wednesday as investors were unnerved by a higher than expected inflation rate in May amid weak growth in Southeast Asiaâs largest economy
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he local stock market index dropped to its lowest level in almost a month on Wednesday as investors were unnerved by a higher than expected inflation rate in May amid weak growth in Southeast Asia's largest economy.
The benchmark Jakarta Composite Index (JCI) ' the main price barometer in the local bourse ' fell 1.6 percent to 5,130.5 during the day, marking the lowest point seen since May 7, as foreign investors sold Rp 521.6 billion more stocks than they bought.
The JCI was the worst performer in the mostly green regional indexes. All major Southeast Asian indexes recorded slight increases in Wednesday's closing, led by Thailand's SET Index's 0.56-percent gain.
First Asia Capital analyst David Sutyanto said that investors shied away from the country's stock market following unexpectedly high May inflation, making the market speculate that the central bank might maintain its tight monetary policy despite calls to lower borrowing costs to shore up corporate loans and expansion amid slow economic growth.
'The fasting month has yet to come, but inflation has already been high and there is a possibility for higher inflation in June. This has further led to market players speculating that Bank Indonesia [BI] will not lower its interest rate in the near future so investors have pulled their money from the market,' David said.
Indonesia's annual inflation stood at 7.15 percent as of May this year, higher than the government's and the central bank's upper limit target of 5 percent, even before the festive Ramadhan month and Idul Fitri holidays that will last from mid-June to mid-July, when normally consumer demand will pick up, thus increasing prices.
Inflation during the month of May reached 0.5 percent, the highest rate among similar months in the last seven years, triggered by increases in food and electricity prices. Bank Indonesia (BI) kept its benchmark interest rate steady at 7.5 percent for the third consecutive month in May after a 25-basis-point cut in February.
Business players and stock market analysts have called on the central bank to cut the so-called BI rate as its tight policy stance is considered to be contributing to a slowdown in corporate expansion and consumer spending, as Indonesia's economy slowed to 4.7 percent in the first quarter, the lowest level in six years.
Investa Saran Mandiri analyst Hans Kwee said that a drastic fall in banking shares reflected how investors were worried about a further economic slowdown in the second quarter, as financial shares are considered as reflective of the overall economy.
The finance sub-index slumped by 2.85 percent on Wednesday, among the steepest daily declines after miscellaneous industry, which fell by 3.45 percent. Nine out of 10 sub-sectors in the bourse ended in the red during the day, with only agriculture slightly up by 0.31 percent.
The country's four top lenders ' Bank Central Asia (BBCA), Bank Mandiri (BMRI), Bank Rakyat Indonesia (BBRI), and Bank Negara Indonesia (BBNI) ' are all recorded as top contributors to Wednesday's market slump.
BBCA shares dropped 3.7 percent to Rp 13,600 apiece. BBRI and BBNI dipped 4.1 percent respectively to Rp 11,250 and Rp 6,375, while BMRI fell 1.4 percent to Rp 10,550 each.
