Inflation, Interest Rate Worries Drive Jakarta Composite Index to Two-Week Low
Jakarta. Indonesian shares hit a two-week low on Tuesday because of fears about inflation and the interest rate outlook, but they still ended the month with slim gains.
The Jakarta Composite Index lost 17.68 points, or 0.6 percent, to close at 3,081.88. Some 4.2 billion shares worth Rp 3.7 trillion ($391 million) changed hands. Decliners outnumbered gainers 132 to 58.
A burst of late buying limited the losses, after the JCI was down 35 points in the late afternoon.
“The market is in a consolidation phase and local investors also took profits ahead of next week’s Idul Fitri holiday. Global market weakness and the drop in the rupiah also caused the share falls,” said John Teja, a director at Jakarta-based Ciptadana Securities.
“In the short term, the upcoming holiday season will slow down the market but in the medium term it’s still on a rising trend because of the strong fundamentals of Indonesia’s economy.”
Among decliners were energy companies such as Adaro Energy, Indonesia’s biggest listed coal producer by market value, which tumbled 4 percent after reporting on Monday that first-half net income fell 49 percent to Rp 1.2 trillion as coal prices fell and the rupiah strengthened.
Medco Energi Internasional, the country’s biggest listed oil company, slid 0.8 percent.
Bakrie Group coal miner Bumi Resources fell 2.9 percent after it reported first-half net income declined 30 percent to $134.6 million as interest costs increased and it paid higher taxes.
Financial stocks outperformed. Bank Mandiri rose 1.5 percent, while Bank Negara Indonesia advanced 1.7 percent.
Meanwhile, the rupiah fell 0.4 percent to post a decline for the month of August, halting a two-month winning streak as signs the global economic recovery is faltering damped demand for emerging-market assets.
The currency slumped for only its second month in a year, dropping 1.1 percent.
The rupiah was at 9,048 to the dollar as of the stock market’s close. It was the third-worst performer in August among Asia’s 10 most-traded currencies, after India’s rupee and South Korea’s won.
“There was modest weakness across some Asian currencies in August due to global growth concerns, especially as the US data is getting weaker,” said Thomas Harr, Singapore-based Asia foreign-exchange strategy head at Standard Chartered. “There’s nothing really Indonesia-specific that is driving the rupiah lower.”
Losses in the currency were limited as funds based abroad plowed money into Indonesian securities in August. Overseas investors bought $246 million more local shares than they sold, boosting net purchases for the year to $1.6 billion.
Analysts expect the central bank to keep interest rates unchanged at a meeting this week to support growth, even as a government report today may show inflation has accelerated to the fastest pace since April 2009.
According to economists’ estimates, annual inflation rose to 6.7 percent in August from a year earlier, after climbing to 6.22 percent the previous month. The government inflation report is due today. Bank Indonesia will keep its policy rate at 6.5 percent when it meets on Friday, according to a separate survey.
Harr said the higher inflation data should have a limited impact on the rupiah as the central bank was expected to raise its policy rate in the fourth quarter. Standard Chartered was sticking with a forecast that the currency would rise to 8,800 by the end of the fourth quarter, he said.
The currency will gain to 8,900 by year-end, according to the median estimate of economists.