Rout in Indonesian markets worsens before central bank decision

JAKARTA: Indonesian stocks and rupiah retreated for a third day, with the currency hitting a 31-month low as foreign investors dumped the nation’s assets after a spike in benchmark US yields.

The rupiah slumped to as low as 14,110 to a US dollar, the weakest level since October 2015, while the Jakarta Composite Index dropped as much as 1.6% yesterday. The yield on benchmark 10-year government bonds rose by 10 basis points to 7.19%.

A fresh wave of risk aversion is spreading across Asia as investors grapple with rising Treasury yields and a strong US dollar amid lingering trade, growth and geopolitical wor- ries. That is adding pressure on Bank Indonesia to increase interest rates today as it seeks to stem the sell-off that’s made the nation’s currency and stocks among the worst performers in Asia. A series of terror attacks this week have further soared investor sentiment.

“Investor sentiment has been weak to begin with, and now we’ve got this series of bomb attacks and various reports of other terror scare. All of these have raised the uncertainties on Indonesian market further,” said John Teja, a director at PT Ciptadana Sekuritas Asia.

“The rupiah is also weakening. At this point, I don’t see any positive catalyst that can reverse the trend.”

A series of terror attacks rocked Indonesia this week, killing at least 26 people, including a total of 13 militants and their children, according to the Associated Press.

The police shot dead four sword-wielding men who attacked a police headquarters in Sumatra province yesterday, which also killed a police officer, the agency reported.

Foreign investors are net sellers of about US$2.8bil of Indonesian stocks this year, turning the nation’s equities into the worst performer in Asia. Net outflows from rupiah bonds have totalled US$2.3bil since the end of March, data compiled by Bloomberg show.

The selloff also spread to US dollar bonds from Indonesian issuers after the nation posted the biggest trade deficit in four years on Tuesday, fuelling speculation the local currency will weaken further and push up servicing costs on international debt.

“Indonesia’s trade deficit number yesterday (Tuesday) was much weaker than expected and the rupiah reacted to that,” said Bharat Shettigar, head of Asia ex-China corporate credit research at Standard Chartered Bank.

“That places pressure on the central bank to hike rates in tomorrow’s (today) policy meeting.”