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Rupiah, share prices dive deeper
Share prices on the Indonesia Stock Exchange (IDX) and the rupiah further weakened on Wednesday amid a report on the worsening of the country’s trade deficit and negative sentiment from escalating trade tensions between the United States and China
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span>Share prices on the Indonesia Stock Exchange (IDX) and the rupiah further weakened on Wednesday amid a report on the worsening of the country’s trade deficit and negative sentiment from escalating trade tensions between the United States and China.
The rupiah was being traded at 14,448 against the US dollar on Wednesday, data from Jakarta Interbank Spot Dollar Rate (JISDOR) revealed, slightly lower than 14,444 per US dollar the previous day, Bloomberg data revealed that the currency was being traded at 14,463 per US dollar.
After briefly regaining its strength in the first hours of Wednesday’s trading session, the Jakarta Composite Index (JCI) — the main gauge of the IDX — plummeted and closed at 5,980.89, or down 1.49 percent compared to the day before.
The figure was also the lowest position the index had reached this year.
The IDX recorded a total of Rp 459.1 billion (US$31.73 million) in net foreign sales, with Bank Rakyat Indonesia shares being the most sold shares by foreign investors on the day.
Trade tensions between the US and China escalated last week when Washington hiked import tariffs to 25 percent on Chinese goods worth $200 billion, while Beijing had announced its plan to impose import tariffs on US goods worth $60 billion by June 1, Bloomberg reported.
Finance Minister Sri Mulyani Indrawati said the government would remain alert to the ongoing tensions between the two largest economies in the world, a situation which she said was unlikely to subside soon.
The tensions surrounding trade policy would likely force China to increase the stimulus for its economy, while the US would face inflationary pressure due to price increases from Chinese imports, said Sri Mulyani.
She also emphasized that the situation would affect the growth of global trade as well, which meant that Indonesia’s export performance could not be relied upon to fire up the economy.
“For a country like us [Indonesia], which depends on export [for] external balance, this means that we cannot rely on export as an engine of growth,” said Sri Mulyani in Jakarta on Wednesday.
An economic observer from the Asian Development Bank (ADB) Institute, Eric Sugandi, said the deep trade deficit had influenced the rupiah’s position on Wednesday.
Indonesia booked a trade deficit of US$2.5 billion in April, the largest monthly deficit recorded since 2013, Statistics Indonesia (BPS) announced on Wednesday, in contrast to March and February when there was a surplus of $670 million and $330 million, respectively.
“Fundamentally, the trade deficit and current account deficit weakened the fundamental support for the rupiah,” said Eric.
He also said there might be a seasonality factor at play, as usually demand for the US dollar from foreign investors increased due to dividend payments from multinational firms operating in Indonesia, which further exerts pressure on the rupiah.
Eric projected the rupiah’s value against the greenback to hover between 14,300 and 14,700 until the end of the month.
Bank Central Asia (BCA) chief economist David Sumual said policy certainty from the government was key to regaining foreign investors’ trust in the long run, considering that Indonesia still needed foreign investments to finance its current account deficit.
“The most important thing for long term investments is policy consistency,” said David, adding that the government would need to assure the market of its commitment to further pursue structural reforms.
Securities firm BCA Sekuritas analyst Achmad Yaki also cited the trade deficit as well as ongoing tensions between the US and China as contributing factors to the steep decline in the stock market.
Such sentiment, he said, also made foreign investors sell-off their shares they had in Indonesia and was proven by the amount of net foreign sales recorded on the day.
Achmad predicted that the negative sentiment from the trade war and the rupiah’s depreciation might still influence the stock market on Thursday, but added that there may be room for a rebound.
“However, if the index manages to move between the range of 5,994 to 6,015, there’s still potential for a technical rebound,” he said.
