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The Jakarta Composite Index posted its biggest single-day drop in almost three years on Friday as the specter of another global economic slowdown dragged markets lower across the region.

From Japan to India, markets fell in reaction to the decline in the United States, where disappointing economic reports since last week have heightened worries that the world’s largest economy may slip back into recession.

US economic growth in the second quarter was meager. Declining manufacturing and consumer spending have also shown underlying weakness in its economy, and a last-minute budget deal earlier this week to avoid default did little to allay fears.

In Europe on Thursday, the European Central Bank purchased bonds in a futile attempt to calm investor fears of the debt crisis spreading to Italy and Spain. The effect was minimal and borrowing costs continued to rise.

“Investors are in panic-selling mode because of the increasing uncertainty in the global economy,” said Norico Gaman, head of equity research at BNI Securities. “The US decision to cut back on government spending is feared to slow its economic growth, then lead to increasing debt, a downgrade in credit rating and it could ultimately lead to a potential global crisis.”

To help temper the local market, President Susilo Bambang Yudhoyono told the public there should be “no panic” and the government would use all necessary measures to avoid a crisis.

The JCI fell 200.44 points to close at 3,921.64 on Friday. Its 4.9 percent slide was the biggest since Oct. 8, 2008, when it lost 10 percent in the aftermath of the Lehman Brothers collapse.

More than 10.3 billion shares valued at Rp 9.9 trillion ($1.2 billion) changed hands. Of the 332 stocks traded on the Indonesia Stock Exchange, only eight rose.

Coal miners, palm oil producers and rubber plantation operators were the biggest losers following a drop in commodity prices on concerns slowing global growth would weaken demand.

Leading the decline with a 6.2 percent fall was the mining sector, followed by a 6.1 percent drop by agriculture stocks.

Norico said there was little capital outflow as the rupiah traded in a range of 8,500 to 8,600 to the US dollar on Friday, with investors instead putting their money into fixed-income assets.

“Investors are taking out their money from the equity market, but those funds did not leave the country,” he said. “Some of them might temporarily turn to government bonds or the central bank’s debt certificates.”

Winston Sual, a fund manager at Panin Sekuritas, said the lack of liquidity in the Indonesian market meant most investors were waiting to see where it was going.

“Indonesia’s economy is comparatively stronger than the US or European countries. The fundamental indicators are undisturbed and domestic consumption is strong,” Norico said. “Those can help the index rebound. Just like in the 2008 crisis, by the end of 2009 we had fully recovered.”

 

Additional reporting by Shirley Christie

Further Coverage

Editorial > A10

GDP up 6.5 percent in H1 > B1