Bleak economic outlook casts shadow over Indonesian stock market

Posted by on 10 Oktober 2019


Growing concern about a possible global recession continues to cast a shadow over the Indonesian stock market with most blue-chip stocks under persistent pressure in the past two weeks amid a lack of appetite among both local and foreign investors.

The Jakarta Composite Index (JCI), the main gauge of the Indonesia Stock Exchange (IDX), has been in the red for the past 13 days. The index fell 3.5 percent to 6,023 at the close of afternoon trading on Wednesday from 6,230 on Sept. 26. The index has fallen by 2.76 percent year-to-date (ytd).

Like in other stock markets, the majority of Indonesian stocks lost ground as weak economic data in Europe and other developed countries fueled fears of a global recession, analysts said.

MNC Sekuritas’ head of research Thendra Chrisnanda said on Tuesday that growing concerns over the global economy and the lack of recovery in the country’s stagnant economy had put pressure on stock prices in the local market.

Most share prices fell, as investors sidelined the market amid growing fears the economic slowdown would lead to a global recession, he said.

World Bank president David Malpass said the global economic outlook was deteriorating amid Brexit-related uncertainty, trade tensions and a downturn in Europe.

“Global growth is slowing,” Malpass said, as reported by Bloomberg from Montreal, Canada, on Monday in a speech ahead of the IMF and World Bank annual meetings. The world economy now looks even weaker than the bank’s June forecast of 2.6 percent growth in 2019, as it had been “hurt by Brexit, Europe’s recession and trade uncertainty,” he added.

Malpass renewed his global growth warning, as investors are keeping an eye on several major issues that could come to a head this month.

Economists have also pointed to several indicators of a possible recession in the United States. For example, the 10-year treasuries yield has fallen below the two-year yields for the first time since 2007, while its gross domestic product (GDP) has slowed to 2.1 percent in the second quarter of this year.

A recession cloud also looms over Germany, with the Bundesbank warning that the country was heading into recession following a slump in exports during the summer. The latest data from the central bank recorded a 0.6 percent decline in exports in August.

Other than negative sentiments outside Indonesia, Samuel Sekuritas analyst Suria Dharma said domestic factors had also contributed to the JCI’s decline in the past month.

“Student protests, declining foreign exchange reserves and the cigarette excise hike affected the index’s movement, causing it to decline,” he said.

In a wave of demonstrations in late September, students and NGO activists protested the newly revised Corruption Eradication Commission (KPK) Law and the Criminal Code bill, prompting investors to pull out their money over security concerns, he said.

It was feared the protests would cause political instability, as they also occurred amid deadly unrest in the country’s eastern most province of Papua. Several dozen people were killed when violence broke out in Wamena city, Papua, last month, with some victims burned alive when buildings were set ablaze, with others were stabbed in the chaos, according to authorities.

A US$2.1 billion decline in foreign exchange reserves in September also affected investors’ confidence in the country’s stock market, he said.

Moreover, the 23 percent cigarette excise hike announced last month by the government saw cigarette maker stocks like PT HM Sampoerna and PT Gudang Garam decline, Suria said. “The decline in the two heavy weight stocks helped drag down the JCI,” he explained.

With the global economy’s bleak outlook, he lowered his JCI target to 6,650 at the end of this year from the previous target of 6,800. However, despite the gloomier projection, Suria gave an assurance that Indonesia, unlike the US and Germany, was far from facing a threat of recession thanks to its robust domestic consumption.

The JCI’s decline occurred as foreign investors pulled out of the local stock market. As of Tuesday, foreign investors had sold shares worth a total of Rp 17.04 trillion ($1.2 billion) ytd.

However, Suria said money was not flowing out of the country, as the majority was being reinvested in the country’s bond market. This statement was backed by Finance Ministry data that recorded a 15.28 percent ytd increase in foreign holdings in government bonds.