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Indonesian currency, share prices jump as foreign funds return
Publication Date : 20-09-2013
The Indonesian currency rose significantly and stock prices rallied on Thursday as the US central bank’s unexpected decision to delay its plan to reduce its stimulus plan spurred foreign buys in the local stock market.
The rupiah rose 1.7 per cent to 11,283 Indonesian rupiah per US dollar the sharpest increase since May 30, last year as the Federal Reserve’s decision to stick to its stimulus plan had encouraged many foreign fund managers to return to the local stock and debt markets.
Data from Bloomberg also showed that in the offshore market, the one-month non deliverable forwards gained 2.8 percent to 10,870, the most since December 2008, indicating increased confidence in the Indonesian currency.
The Jakarta Composite Index (JCI), the main price indicator on the Indonesian Stock Exchange (IDX), also jumped by 4.65 per cent to end the day at 4,670.73.
Financial analysts have said that the Fed’s decision not to reduce its stimulus program had encouraged foreign fund managers to buy under-valued shares in the local market, which had caused price increases across the board.
While admitting that the price rallies were short-lived, the positive sentiment should give the government and the central bank more time to mend the financial system, the impact would be small when the Fed eventually cuts its bond-buying program.
Bank Mandiri chief economist Destry Damayanti said that with more than a 4 per cent increase in the price index, the stock market performance was extraordinary. “The share price increase was so high. I think the market will recoup the losses from the past several weeks,” she said.
She estimated that the “excessive” movement would not last long as sooner or later, the Fed would reduce its stimulus program. Destry said that the upward trend in the share prices should give the government time to fix the economy and provide certainty for investors.
The Fed unexpectedly decided on Wednesday to stick to its stimulus program as it needs more evidence of improvement in the US and global economy before gradually reducing the program as it hinted earlier.
Valbury Securities analyst Budi Rustanto, said about 1 trillion Indonesia rupiah (US$88.67 million) worth of foreign funds entered the stock market on Thursday following the Fed’s decision.
However, he predicted that the market might decline again in October when the Fed would hold its monthly meeting again.
“It’s just a matter of time until the Fed cuts its stimulus plan. To anticipate another slowdown due to foreign funds outflow, the authorities have encouraged more domestic investors to enter the market in order to help offset the impact,” he said.
Separately, Finance Minister M. Chatib Basri said that while waiting for the Fed to have its final say on the stimulus program, the Indonesian government would continue with its policy package, which was launched last month.
“We will remain cautious and implement the programs, which we have set, even though we saw a positive response from the market today. Everything is still in place,” he
told reporters on the sidelines of a Finance Ministers Meeting event in Nusa Dua, Bali.
Meanwhile, Bank Indonesia (BI) spokesperson Difi Johansyah said the Fed’s decision had encouraged companies to sell their dollars resulting in increased supply of the greenback.
“The market was very active today. Many companies decided to sell their dollars. We recorded higher foreign exchange transactions by the end of the day, the daily average transaction volume is $1 billion,” he said when contacted by phone.
Most Asian stocks also rose on Thursday, with the benchmark regional index gaining the most in a year, after the Fed unexpectedly refrained from cutting US economic stimulus.
The MSCI Asia Pacific Index climbed 2.2 percent to 141.73 as of 6:59 pm in Hong Kong, for the highest close since May 22 and biggest daily advance since September.
Japan’s Topix index rose 1.9 per cent to its highest close in eight weeks, with a report showing the nation’s exports jumped the most since 2010 in August from a year earlier.
Australia’s S&P/ASX 200 Index gained 1.1 percent to a five-year high. New Zealand’s NZX 50 Index climbed to a record high of 1.1 per cent. Hong Kong’s Hang Seng Index added 1.7 per cent, and Singapore’s Straits Times Index increased 1.8 per cent.