FOREIGN FUNDS PULLING OUT OF INDONESIA
Jakarta Composite Index becomes first in Asia to lose rally posted this year
INDONESIAN equities slumped on Monday, erasing this year’s gains, as foreign funds pulled out of the local market. With almost every other Asian market still in the green, it is now the first in Asia to lose the rally it posted in 2019.
The Jakarta Composite Index fell 1.2 per cent on Monday, extending its decline after three weeks of losses as concerns surrounding the escalating United States-China trade war hit markets across Asia. The wider-thanexpected first quarter current account deficit reported on Friday added to the wall of worry.
“What happened was a mix of several factors, from global to domestic,” said John Teja, a director at Ciptadana Sekuritas, here.
He pointed to the continuation of the US-China trade rift, concerns surrounding Indonesia’s macroeconomic fundamentals and a volatile currency.
Foreign investors sold a net US$260 million (RM1.08 billion) of Indonesian stocks in the past six days, the biggest weekly outflows since February. Investors also withdrew about US$87 million from the iShares MSCI Indonesia ETF last week, the biggest outflows since at least 2010, according to data compiled by Bloomberg.
The MSCI Indonesia ETF dropped 3.5 per cent on Monday in the US, its steepest decline since October 24.
Earlier this year, Indonesia’s benchmark index came close to hitting a fresh record high after rallying almost six per cent amid falling oil prices and central banks’ dovish stances. That came to a halt when last year’s current account deficit widened to a fouryear high, raising concerns about the shortfall weighing on the nation’s economy.
Indonesia’s current-account deficit makes the country more reliant on foreign investment and, therefore, vulnerable to outflows when investor sentiment turns sour. Market watchers are often fixated on whether the deficit, the broadest measure of trade in goods and services, widens or not to determine an economy’s vulnerability.
Hopes for an interest rate cut may have cooled. Market watchers had previously expected that the central bank may have room to start easing its monetary policy in the second half of this year.
“There isn’t much that we can do unfortunately, but obviously, all eyes will be on May 22,” said Harry Su, managing director and head of equity capital markets at Samuel International, referring to the date of official election results.
“We have to get over that domestically. If things are safe and nothing happens, that would be the first big hurdle we overcome,” he added.
The incoming government would have to implement sound policies related to labour and investment reforms, said Su.
“The market will take its cue from that,” he added.
The escalating trade tensions have impacted the yuan and in turn has hurt the sentiment on Indonesia’s currency. The rupiah fell to a four-month low last week.
“Further tariff imposition on the remaining of US$300 billion of Chinese exports to the US will definitely weaken the yuan and hurt sentiment on other markets, including Indonesia,” said Jeffrosenberg Tan, a strategist at Sinarmas Sekuritas.
“This may create more downside risks on equity and bond markets.”