Indonesian Stocks Drop to Tw0-Year Lows

Indonesian stocks slipped the most in nearly two years on Wednesday and authorities intervened “decisively” to support the currency and bond markets as a global rout in emerging market assets heightened and intensified.

At Jakarta, stocks have lost almost 5 percent after the midday break. President Joko Widodo also blamed “a barrage of external factors” for the rupiah’s fall to 20-year lows. He said that the priority was to increase investment and exports to contain the country’s current account deficit.

“There are only two key (things) – investments must continue to increase and exports must also increase so (we) can resolve the current account deficit,” said Widodo to reporters during his visit to Jakarta’s port, in comments that were posted on the cabinet secretary’s web page.

Indonesia’s current account deficit was 1.7 percent of gross domestic product the year before. However, it is expected to widen to roughly 2.5 percent in 2018 as economic activity increases, said Bank Indonesia.

Indonesia assets have sold off as investors flee emerging markets, with the weakness of Southeast Asia’s biggest economy being increased by the worries over its current account deficit and need to import oil.

The threat of new US tariffs on another $200 billion worth of Chinese goods that could take effect after a public comment period in Washington wraps up on Thursday and worsening sell-off in other emerging markets kept investors nervous.

Stock markets in the Philippines, China, Singapore, and India slipped alongside Indonesia’s. While Asian markets had been so far insulated from the rout in other more indebted emerging economies, they have also now succumbed to the news that South Africa has fallen into recession and to further sharp falls in markets in Turkey and Argentina.

The Jakarta stock index finished down 3.7 percent. This was its fifth session of losses in a row and its sharpest one-day fall since November 2016.

The battered rupiah fared better on the day, but it was still on its way for its biggest seven-day selloff in three years, following heavy intervention by authorities to support the currency.

It was trading at 14,940 against the dollar, near its lowest level since the Asian financial crisis in 1998. The rupiah has dropped around 9 percent this year.

Indonesia’s central bank “decisively intervened” in the foreign exchange and bond markets on Wednesday morning to “smooth volatility” of the rupiah, said Nanang Hendarsah, who is the head of monetary management at Bank Indonesia.

On Wednesday, OCBC Bank in Singapore stated attempts by BI to support the rupiah are slowing down its slip. However, they were “insufficient to turn the tide.”

Indonesia’s benchmark 10-year bond yield was at 8.448 percent, up from the previous day’s closing of 8.340 percent.

On Tuesday, Indonesia’s government said that authorities will take firm action against currency speculators, and announced plans to delay the import-heavy energy projects.

Finance Minister Sri Mulyani Indrawati did not say what sanctions speculators could face, but he warned that they would be checked by the central bank and the Financial Services Authority (FSA) to ensure that they were based on actual trade or commerce.

In an attempt to anticipate the future dollar announcements, President Joko Widodo requested ministers to give him figures on how much foreign currency would be needed to pay for imports that are related to large infrastructure projects.

The government also announced plans to delay a projected $24 billion to $25 billion in import-heavy power station projects, and enforce rules to keep export earnings at home, among efforts to support the rupiah.

The reduce the oil import bill, Indonesia has sought to boost the use of biodiesel.

On Wednesday, the government will announce import tariffs on hundreds of consumer goods, said Indrawati.

Among hthe other planned changes, Indonesian oil producers must provide crude to state energy company Pertamina before selling it overseas. This is a move expected to save the state energy company of up to $4 per barrel on shipping costs.

FSMSmart Review