Indonesia’s market takes a tumble, focuses on exports to curb damage
Indonesia saw the worst tumble in its stocks in at least 2 years on Wednesday, following which Indonesian authorities mediated “decisively” to aid the currency and bond markets as a global stampede in emerging market assets increased.
The United States has already implemented tariffs on Chinese goods and a threat looms over the global market as talks of another set of tariffs coming into play – a total of which could be around $200 billion – intensify. Investors are nervous about financing Southeast Asian markets due to unstable economies. Philippines, China, Singapore and India witnessed falling stock markets in their respective countries when the Indonesian market fell. This took place primarily due to the recession in South Africa and falls in the Turkish and Argentinian markets. Says KarineHirn, a partner at asset manager East Capital, “Let’s not forget that, in general, emerging markets are really exposed to sentiment issues because a lot of investors are from overseas and not necessarily domestic investors. And the sentiment is definitely hurt by these trade tensions around the world.”
Investors are also hesitant to put money in these emerging markets considering Indonesia’s current predicament. Indonesia is, in fact, Southeast Asia’s biggest economy. However, its currency isn’t currently showing promising signs of a fast recovery, with its account deficit as well as the current need to buy oil from other countries. Mainly, however, Indonesia lost almost 5 percent in stocks after their midday break on Wednesday. Current account deficit was 1.7 percent of their 2017 Gross Domestic Product (GDP). Although, if and when the economy progresses, it is expected to rise to 2.5 percent this year itself. The Jakarta stock index (.JKSE) revealed 5 consecutive sessions of losses after closing down at 3.7 percent, which was also its sharpest one-day fall since November of 2016. The falling and aching national currency – the rupiah – saw a better day but it still showed significant indications of damage as it approaches its biggest seven-day selloff in three years. Its value further fell to an all-time low in 20 years.
President Joko Widodo blames “a barrage of external factors” for this fall in the rupiah’s value and said that the Government was making it a priority to increase investment and exports so as not to widen the current account deficit black hole. “There are only two keys (things) – investments must continue to increase and exports must also increase so (we) can resolve the current account deficit,” said Widodo during a visit to Jakarta’s port. The rupiah’s value was 14,940 against the US dollar. This is the lowest it has been since 1998 when Asia witnessed its financial crisis. The total loss is at 9 percent so far this year. Indonesia’s standard 10-year bond yield was at 8.44 percent, an upsurge from previous day’s closing of 8.3 percent.NanangHendarsah, head of monetary management at Bank Indonesia (BI)claimed that Indonesia’s central bank “decisively intervened” in the foreign exchange and bond markets on Wednesday morning to “smooth volatility” of the rupiah. OCBC Bank in Singapore also said that attempts by BI to back the rupiah are slowing down its slide, but “are insufficient to turn the tide”.
Finance Minister Sri MulyaniIndrawatiwarned that large currency transactions would be overseen by the central bank and the Financial Services Authority (FSA) to ensure they were based on actual trade or commerce. She also said that the government would announce import tariffs on hundreds of consumer goods on Wednesday.
*Neha Hardikar is a Research Intern at The Kootneeti