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US-Iran row poses new threat to RI's economy
Market alert: Iran's Supreme Leader Ayatollah Ali Khamenei is seen speaking on a TV screen in the Kuwait Stock Exchange as investors monitor the shares in Kuwait on Wednesday
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arket alert: Iran's Supreme Leader Ayatollah Ali Khamenei is seen speaking on a TV screen in the Kuwait Stock Exchange as investors monitor the shares in Kuwait on Wednesday. (Reuters/Stephanie McGehee)
The heightened tension between the United States and Iran after a US air strike killed influential Iranian general Qassem Soleimani last week will add to the global economic uncertainties, which could further affect Indonesia’s exports, analysts have said.
BNI Sekuritas head of research Damhuri Nasution said the escalation of tensions between the US and Iran could potentially affect Indonesia’s economy as a result of rising oil prices and foreign outflows.
“About 30 percent of the world’s oil supply goes through the Hormuz Strait in Iran,” he explained during a discussion on the market outlook in Jakarta on Monday. “If tensions further escalates between the two countries and Iran decides to close off the strait, it will hinder the global oil supply and catapult oil prices this year.”
Should the row between the world’s top oil producers heighten, he predicted oil prices would increase to above US$100 per barrel.
The situation worsened on Tuesday as Iran launched more than a dozen missiles at two Iraqi bases that hold US troops in what appears to be retaliation for the airstrike last week, the Pentagon said Tuesday as reported by CNN.
Oil prices jumped following the Iran attacks, sparking fears the deepening conflict would disrupt global crude supplies. Crude oil prices in London briefly surged more than 5 percent to almost $72 a barrel early on Wednesday as the Islamic Revolutionary Guard Corps claimed responsibility for the missile strikes, Bloomberg reported.
Asian shares and US treasury yields plunged, while gold and oil shot higher. MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.5 percent. Japan’s Nikkei dropped 2.5 percent and Australian shares fell 1 percent.
The increase in the crude oil price could pose another threat to Indonesia’s economy as the rise would further increase the government’s spending on oil imports, which have so far contributed to the country’s trade deficit.
The rise in crude oil prices could also force the government to raise fuel and electricity prices which would in turn further weaken the people’s purchasing power, Damhuri said.
Escalating tensions between the US and Iran could make foreign investors resort to safe-haven assets like gold and pull out their money from risky assets in the emerging market, including our equity and bond market, as it could destabilize the rupiah,” he said.
Anugerah Mega Investama director Hans Kwee told The Jakarta Post on Tuesday that given the fact that Indonesia was a net oil importer, the surge in oil price could widen the country’s current account deficit and negatively impact the balance of payment, which would weaken the rupiah against the US dollar.
Despite the apparent threat, some analysts still believe that the conflict between the US and Iran will only have a limited impact on the Asian stock market, including Indonesia.
CMC Markets Singapore strategist Margaret Yang told Bloomberg that the crisis “may prove to be short-lived,” and will likely have a limited impact on Asian economies. She also believed there would likely be a cyclical recovery in global manufacturing activities and improving business conditions following a US-China trade truce, she said as quoted by Bloomberg.
Damhuri said although the country’s bond yield would be lower than 2019, he believed foreign investors would not be deterred as it offered a much better yield than in the developed market.
BNI Sekuritas head of equity research Kim Kwie Sjamsudin also believed that foreign investors would flock to the stock market on the expectation of better financial performance this year.
“We predict listed companies’ earnings per share [EPS] growth will be up to 9 percent this year due to higher crude palm oil prices and better global trade and economy,” he said, adding that the figure was much better than 2019’s projection of 3 to 5 percent.
He also predicted that the Jakarta Composite Index (JCI) — the main gauge of the Indonesia Stock Exchange (IDX) — will reach the 6,850 level this year, supported by the positive sentiment from the proposed omnibus law currently being deliberated at the House of Representatives.
“The law may need some time before being fully implemented for the real sector, but market players are already pricing in the impact to the economy and it will help boost the JCI this year,” he said.
