JCI, Rupiah Extend Losses as Investors Run for Cover Amid Global Uncertainty

May 06, 2010

Muhamad Al Azhari
Brokers at the Indonesia Stock Exchange (IDX). The JCI fell 1.3 percent on Thursday, following a drop of 3.8 percent the day before. Concern about the European debt crisis was the major driver in the sell-off. (Antara Photo)

Brokers at the Indonesia Stock Exchange (IDX). The JCI fell 1.3 percent on Thursday, following a drop of 3.8 percent the day before. Concern about the European debt crisis was the major driver in the sell-off. (Antara Photo)
JCI, Rupiah Extend Losses as Investors Run for Cover Amid Global Uncertainty

The Jakarta Composite Index fell 1.3 percent to its lowest in six weeks on Thursday and the rupiah suffered its biggest one-day loss since November as fears that the European debt crisis might derail the global recovery sent investors fleeing to safe havens. Uncertainty over who will replace Finance Minister Sri Mulyani Indrawati also added pressure.

A 50-point rally in the last hour of trading offered a glimmer of hope that the four-day sell-off was losing momentum, and some market analysts expressed confidence that Indonesia’s economic fundamentals would limit the pain for those holding domestic stocks. But there was agreement that fears of European debt contagion would be the primary driving force in the days and weeks ahead.

“The bottom line is this — as long as contagion fears continue to linger in the market [Portugal and Spain are being closely watched after Greece] investors will shy away from risky markets,” said Gundy Cahyadi, an economist at OCBC Bank in Singapore.

The JCI fell to 2,810.62, extending Wednesday’s 3.8 percent drop. Decliners outnumbered gainers 137 to 63. Volume was heavy, with 6.1 billion shares worth Rp 6.2 trillion ($675.8 million) changing hands. Foreign investors were net sellers by Rp 862 billion.

Meanwhile, the rupiah slumped 1.74 percent to 9,290 against the dollar as of 8 p.m. in Jakarta.

Bank Indonesia acting Governor Darmin Nasution, who last week said the central bank would keep the rupiah “just above the 9,000 level” offered vague assurances that Bank Indonesia would limit the currency’s volatility.

“We would intervene only if we believe its move has been too big,” he said.

Darmin said the rupiah was holding up better than some other emerging-market currencies.

News of the departure of Sri Mulyani for a senior position at the World Bank added to selling of domestic assets on Wednesday and Thursday, analysts said, but the news was not as big a factor as European debt.

“Essentially, yes the departure of Sri Mulyani might be a factor but it’s not as big a factor as what is happening in Europe,” Gundy said.

Alberto Isgut, an economist at the United Nations’ Economic and Social Commission for Asia and the Pacific, expected Sri Mulyani’s exit to have a limited affect on the market.

“This is unexpected news and I hope the short-term impact will only last about a week. But I am confident that the government will replace Sri Mulyani with someone as competent,” Alberto said. “In the long run it won’t have a strong negative effect because Indonesia has strong economic fundamentals.”

Darmin also expressed faith in the economy’s foundations on Thursday.

“At the end what determines [investor] confidence is economic fundamentals. Sentiment will always be temporary,” he said.

Darmin forecast the economy would expand by more than 5.7 percent in the second quarter.

“For the time being, there’s uncertainty in the market,” PT Ciptadana Securities head of sales John Teja told Reuters. “I believe investors will focus on fundamentals and the market will rebound.”

Among the major decliners on Thursday were PT International Nickel Indonesia, whose shares fell by 2.2 percent; fellow producer PT Aneka Tambang, down 2.3 percent; and tin miner PT Timah, whose stock dropped 3.1 percent to Rp 2,350, its lowest close since April 8.

http://www.thejakartaglobe.com/business/jci-rupiah-extend-losses-as-investors-run-for-cover-amid-global-uncertainty/373565