Capital Market and Rupiah Exchange Rate Fall

KOMPAS/PRIYOMBODO (PRI)

The movement of the index was monitored from the monitor at the Indonesia Stock Exchange in Jakarta on Tuesday (16/4/2024). In addition to the weakening of the Composite Stock Price Index (IHSG) at the start of trading, the exchange rate of the Indonesian rupiah against the US dollar also showed a decline.

JAKARTA, KOMPAS — The increasing geopolitical tensions between Iran and Israel along with domestic inflation and the long Eid holiday have had an impact on the domestic financial market. In the first trading after the Eid holiday, Tuesday (16/4/2024), Composite Stock Price Index or IHSG was corrected by more than 100 bases points and the rupiah exchange rate continued the depreciation trend.

This weakening pressure on financial markets is expected to continue at least until this week.

The IDX (Indonesia Stock Exchange) on the first day of trading after the post-Eid holiday fell by 1.68 percent on Tuesday. At the closing of the trading, the IDX dropped 122.075 basis points to the position of 7,164.807 after being at the level of 7,286 at the opening of trading.

Several top stocks have dropped. For example, the BBCA issuer, during Tuesday's trading opening, its stock opened at Rp 9,350 per sheet, a decline compared to the last trading closing on Friday (5/4/2024) at Rp 9,825 per sheet. On yesterday's Tuesday, BBCA's stocks moved in the range of Rp 9,250 - Rp 9,575 per sheet and closed at Rp 9,475 per sheet.

Meanwhile, BBRI opened at a price of Rp 5,375 per share, down compared to the price at the last trading before the Lebaran holiday at Rp 5,650 per share. This Tuesday, BBRI moved in the range of Rp 5,350-Rp 5,575 per share and closed at Rp 5,350 per share.

TANGKAPAN LAYAR DATA IDX.CO.ID

Movement of the Composite Stock Price Index (IHSG) April 16 2024

The Director of Trading and Membership Regulation at the Indonesia Stock Exchange (IDX), Irvan Susandy, said that the movement of the Composite Stock Price Index (IHSG) on Tuesday (April 16, 2024) was influenced by global and domestic factors.

From a global perspective, there has been an increase in political tension among Middle Eastern countries following the attack of more than 300 drones and missiles by Iran on Israel on Saturday (13/4/2024) local time. Apart from that, there was an increase in US Treasury Yield in line with increasing United States inflation and geopolitical dynamics

The long holiday period of Eid al-Fitr 1445 H also contributed to the weakening of the IDX amidst various global economic sentiments that have occurred.

On the domestic front, several releases of domestic economic data in the past two weeks have also contributed to the correction of the Indonesian Composite Index (IHSG), namely the March 2024 Consumer Price Index (CPI) inflation recorded at 3.05 percent annually, an increase compared to February 2024 which was at 2.75 percent annually. The March 2024 foreign exchange reserves were recorded at 140.4 billion US dollars, down from February 2024 which was at 144 billion US dollars.

In addition, the long holiday period of Eid al-Fitr 1445 H also contributed to the weakening of the Indonesian Stock Exchange (IHSG) amid various global economic sentiments. The long holiday period for Eid al-Fitr in Indonesia lasted from April 8-15, 2024, leading to new market adjustments today, Tuesday (16/4/2024).

Also read: IHSG "Fire" Ahead of the Long Eid Holiday

KOMPAS/PRIYOMBODO (PRI)

Employees walk past the Indonesia Stock Exchange logo in Jakarta on Tuesday (16/4/2024). The Composite Stock Price Index (IHSG) at the opening of trading this morning after the long Eid al-Fitr holiday was in the red zone.

For your information, Irvan continued, the global stock indices, such as Vietnam, Taiwan, China, South Korea, Japan, Philippines, and Australia, have recorded a decrease of more than 2 percent in the past two days since Friday. This indicates an adjustment of the Indonesian Stock Exchange in line with the accumulation of market risk during the holiday period.

Professor of Finance and Capital Markets at the University of Indonesia, Budi Frensidy explained that the correction of the stock index was triggered by various negative sentiments that caused capital outflows from the stock market. Geopolitical tensions between Iran and Israel have become the trigger for various concerns that create negative sentiment.

Also read: Rupiah Falls 303 Points, Impact on Industrial Competitiveness is a Concern

He explained that this tension directly pushes up world oil prices. If world oil prices continue to rise, for example up to 100 US dollars per barrel, it will create inflation not only in Indonesia but also globally.

From within the country, the high price of oil is usually countered by providing subsidies from the State Revenue and Expenditure Budget (APBN). If fuel subsidies are increased to prevent inflation and maintain people's purchasing power, the available fiscal space becomes more limited.

KOMPAS/PRIYOMBODO (PRI)

The movement of the Composite Stock Price Index in the first trading session at the Indonesia Stock Exchange in Jakarta on Friday (5/4/2024). The IHSG closed up 0.45 percent or 32.48 points to the level of 7,286.88 at the closing of trading before the long holiday for Eid Al-Fitr 1445 H and Eid Al-Fitr 1445 H.

This was exacerbated by depreciation of the rupiah due to the strengthening of the US dollar compared to world currencies. As a result, state debt could become increasingly burdensome.

The scenario of an economic situation like this, according to Budi, is not advantageous in the eyes of investors. As a result, investors withdraw their capital from the stock exchange floor to be redirected to asset classes that have smaller risks and more profitable yields.

"These various negative sentiments are what caused the JCI to correct quite sharply," said Budi, Tuesday.

He estimated that for at least a week ahead, the IHSG would still be in the red zone. The IHSG is expected to move in the range of 7,050-7,150 for the next week. Pressure on the stock exchange floor, Budi continued, would continue as long as there were no signs of the end of the conflict between Iran and Israel.

KOMPAS/PRIYOMBODO (PRI)

The atmosphere on the Indonesia Stock Exchange floor in Jakarta, displaying the index movement at the opening of trading on Tuesday (16/4/2024). The Composite Stock Price Index opened with a sharp drop of 192.84 points or 2.65 percent to the level of 7,094 following the long Eid holiday.

Rupiah exchange rate

Referring to the Jakarta Interbank Spot Dollar Rate (JISDOR), the exchange rate of the rupiah against the US dollar in Tuesday's trading closed at a level of Rp 16,176. The rupiah weakened by 303 basis points or 1.90 percent compared to the last trading before the Eid holiday on April 5, 2024, which was at the level of Rp 15,873. During April 6-15, JISDOR was not recorded due to the Eid holiday.

As quoted from Google Finance, the exchange rate of the Rupiah itself has reached the level of Rp 16,000 since trading on April 10, 2024. At that time, the exchange rate of the Rupiah closed at the level of Rp 16,002.

A researcher in the field of Macroeconomics and Finance at the Institute for Economic and Social Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI), Teuku Riefky, explained that the depreciation had actually occurred even before the Iran and Israel conflict broke out.

The Federal Reserves (The Fed), the central bank of the United States, has announced that it will lower the benchmark interest rate in the middle of this year. However, this may be delayed due to various US economic data not supporting the interest rate cut.

KOMPAS/PRIYOMBODO (PRI)

The queue of people who want to conduct transactions at PT Valuta Artha Mas in Jakarta on Tuesday (16/4/2024). Officials acknowledge that the number of people who sold their US dollars has increased due to the strengthening exchange rate against the rupiah.

Finally, there has been a capital outflow in various developing countries including Indonesia. This capital outflow has reduced the supply of US dollars domestically, while demand remains the same. As a result, the value of the US dollar has strengthened and the rupiah has weakened.

Quoting the latest data on the ownership of State Securities (SBN) released by the Directorate of Financing and Risk Management of the Ministry of Finance on April 5, foreign ownership of SBN reached Rp 807.20 trillion or equivalent to 14.14 percent of the total SBN. The trend of foreign ownership in SBN continues to decline compared to the end of March which amounted to Rp 810.71 trillion or 14.20 percent of the total SBN.

Also read: The Might of Gold and the Long History of Its Position as a Hedging Tool

The yield of 10-year tenor SBNs increased in Tuesday's trading, rising to 6.97 percent from the previous position of 6.72 percent. This increase in yield indicates a decline in price. The decrease in price reveals foreign investors selling their ownership in SBNs.

Apart from that, with the emergence of Iran's conflict against Israel, there is a possibility that the US dollar will strengthen further. This is because investors will divert their funds to instruments that have less risk and have more profitable returns (safe haven). The two instruments are US dollars and US SBN.

KOMPAS/PRIYOMBODO (PRI)

Officers serve foreign exchange transactions at PT Valuta Artha Mas in Jakarta, Tuesday (16/4/2024). The exchange rate of the rupiah was recorded to weaken, breaking through the level of Rp 16,200 per US dollar after the 2024 Eid holiday.

The high benchmark interest rate of the US central bank makes it more profitable and less risky to keep funds in these two asset classes. Amid global uncertainty, low-risk assets are becoming the destination for investors.

"This is called the flight to safety phenomenon, where investors will move from high-risk assets to lower-risk assets," said Riefky.

Riefky explained that until next week, both the US dollar and government bond markets are still potentially under pressure until there are signs that geopolitical tensions could ease and everything returns to calm.

Calm the market

Senior economist and Associate Faculty at the Indonesian Banking Development Institute, Ryan Kiryanto, estimates that as long as the geopolitical tension between Iran and Israel has not subsided, the pressure will continue to come.

KOMPAS/PRIYOMBODO

Officials inspect US dollars exchanged at PT Valuta Artha Mas in Jakarta on Tuesday (16/4/2024). Officials acknowledge that the number of people releasing their US dollars has increased due to the strengthening of its exchange rate against the rupiah.

Its impacts can spread to various areas, starting from the potential increase in oil prices, depreciation trend of the rupiah, even to inflation, reducing the purchasing power of the community, and also economic slowdown.

Therefore, according to Ryan, he proposed that the government together with Bank Indonesia come forward to provide an official statement to the public about what is happening and what steps will be taken to address this situation.

”This joint statement is important to create calm in the market. "This can give a feeling of confidence to our economic actors," said Ryan.

Also read: In anticipation of Iran-Israel, the government will re-evaluate the subsidy budget