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Get ready for deeper JCI slump: Analysts
The Indonesian stock market fell the most in Asia while the countryâs default risk jumped, on concerns that the countryâs vulnerability to the US interest rate hike could be exacerbated by a steeper-than-expected economic downturn
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T
he Indonesian stock market fell the most in Asia while the country's default risk jumped, on concerns that the country's vulnerability to the US interest rate hike could be exacerbated by a steeper-than-expected economic downturn.
The JCI, the benchmark for the local stock market, dropped by 3.1 percent to hover at 4,861.3 as of the afternoon's break, while Indonesia's five-year credit default swaps ' an indicator of a country's probability to default ' rose to the highest level this year. The rupiah was stable at 13,385 per US dollar, Bloomberg rates show.
The shares of state-run Bank Rakyat Indonesia (BBRI), the nation's most profitable lender, slumped 4.8 percent while state-run infrastructure firm Wijaya Karya (WIKA) dropped by 6.1 percent.
John D. Rachmat, the head of equity research with Mandiri Sekuritas, said he downgraded Indonesia to 'underweight' from 'neutral', as the state-run brokerage firm lowered its year-end JCI forecast from 5,450 to 4,500.
'The economy is slowing down more deeply than expected, the earnings performance does not justify the current valuation and global factors bring additional downside risks,' he explained on Tuesday morning.
US-based investment bank Goldman Sachs downgraded its annual growth outlook for Indonesia this year from 5.3 percent to 4.9 percent, which would be the first time the country's full-year growth fell below 5 percent since the global financial crisis in 2009.
Economic growth has a positive relationship with movement in the equity market, as a slowing economy puts pressure on corporates' earnings and eventually pushes down the index in general.
'Investors have been content to ignore weaker short-term economic and earnings growth, believing a rebound in growth to be just around the corner,' Lyall Taylor and Hendy Soegiarto, analysts from Macquarie Capital Securities Indonesia, wrote in a research note.
They estimated the JCI's fair value to be between 3,000 and 4,000, arguing that investors had mispriced the fact that 'the economy is slowing more rapidly than is understood'.(hhr)(+++)
