Negative Sentiment Hits Stock Market

The Composite Stock Price Index (IHSG) lost 2.81 percent on Thursday as a fall in share prices continued at the Indonesia Stock Exchange (IDX). In total, the index has lost 7.03 percent over the past five days.

KOMPAS/PRIYOMBODO

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JAKARTA, KOMPAS – The Composite Stock Price Index (IHSG) fell by 170.65 points, a 2.81 percent drop, to 5,909 at the close of trading on Thursday. Over five consecutive trading days, the index has declined by 7.03 percent.

The weakening of the share prices was mainly caused by the strengthening of the US dollar against the majority of world currencies, including the rupiah, which declined sharply during the past several days. Moreover, there was no domestic issue that could bring a positive sentiment to halt the fall of the Indonesian currency.

In a press statement, the president director of the Indonesia Stock Exchange (IDX), Tito Sulistio, said the share prices declined due to panic in trading amid uncertainties in the Indonesian economy.

Investors were worried that the decline in the rupiah exchange rate against the US dollar would continue. On Thursday alone, foreign investors’ net sales reached Rp 1.30 trillion (about US$94 million). The accumulative net sales of the foreign investors this year totaled Rp 32.95 trillion. Market capitalization fell from Rp 6.75 quadrillion to Rp 6.56 quadrillion.

According to Tito, the only way to improve the situation is to rebuild market optimism. "When (Donald) Trump won the US elections, during the period from Dec. 16 to 23, 2016, the IHSG index plunged by 3.9 percent. However, in just a week, the index managed to increase by 5.35 percent," said Tito.

Capital outflow

Reza Priyambada, an analyst at Binaartha Parama Securities, said that an indication of panic trading could be seen from a surge in capital outflow from the capital market. Psychologically, investors were worried that the weakening of the rupiah exchange rate would affect the financial performances of the companies listed on the stock exchange, he said.

Meanwhile, Lucky Bayu Purnomo, an analyst at Danareksa Securities, said that the sharp fall in the JCI indicated that the shares on the local stock exchange had been oversold.

"When the US dollar strengthened, it was reasonable for there to be a price correction," he said.

Tito said that in order to ease the concerns of the foreign investors, the government needed to review the long public holidays during Idul Fitri celebrations. The closing of stock trading in more than two weeks might raise concerns among foreign investors.

"Investors are worried that something could happen during the two-week holiday. This may prompt them to take a selling position," he said.

Within a year, the average number of public holidays is 22 to 23 days. The public holidays are the longest in Southeast Asia, where the length of public holidays is only 18 days per year.

According to Jakarta Interbank Spot Dollar Rate (Jisdor) issued by Bank Indonesia (BI) on Thursday, the rupiah weakened further to Rp 13,930 per US dollar from Rp 13,900 on the previous day. In the spot market, the rupiah was steady at Rp 13,891 per US dollar.

However, BI said the depreciation of the rupiah would not endanger the stability of the national financial system. The statement was made during a press conference on the fall of the rupiah at the central bank’s office in Jakarta on Thursday. The press briefing was attended by BI Governor Agus DW Martowardojo and BI deputy governor Erwin Rijanto.

Agus said the percentage of depreciation of the rupiah during the period from April 1 to 26 was only 0.88 percent. The percentage is smaller than the fall in the currencies of other countries. In the same period, the baht lost 1.12 percent, ringgit 1.24 percent, Singapore dollar 1.17 percent, won 1.38 percent and Indian rupee 2.4 percent.

"The global certainties contributed to the weakening of the rupiah. However, the Indonesian economy remains resilient against global uncertainties. The small percentage of rupiah depreciation shows the domestic economy is still resilient," he said.

According to Agus, BI would continue to be active in the market to stabilize the rupiah exchange rate. In fact, for a long time, BI has issued regulations requiring business players to hedge their foreign debts.

The chief supervisor of banks at the Financial Services Authority (OJK), Heru Kristiyana, said the condition of the banking industry remained solid and had strong resilience against global pressure. This was indicated by the high level of the capital adequacy ratio (CAR), which reached 22.67 percent in March. The profitability ratio reached 2.55 percent, while the ratio of operational expenditure to operating income (BOPO), which reflects the efficiency of banks, rose to 78.76 percent.

Meanwhile, the chairman of the Indonesian National Carrier Association (INACA), Pahala N. Mansury, said the country’s airlines hoped the government would soon announce an adjustment in flight fares to reduce the impact from the fall in the rupiah.

"We are under pressure due to the weakening of the rupiah. The benchmark of the exchange rate used to determine the tariff is Rp 13,000, but now the exchange rate has reached Rp 13,900. It’s a blow for airlines whose revenues are in rupiah," said Pahala.

The government has asked the people to remain calm in responding to the weakening of the rupiah. The decline in the rupiah exchange rate can be used to encourage exports. Finance Minister Sri Mulyani Indrawati said exports should be increased. "The opportunity is today as global growth rises positively," she said.

(DIM/HEN/ARN)