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Foreign Liquidation Halts IHSG Trading

In an ever-growing complexity that is the financial market during the global economic shock, Southeast Asian markets have been hit the hardest. The tumble this week has pushed equity indices of Thailand, Indonesia and the Philippines to rank among the world’s 10 worst-performing major markets this year. In Indonesia, stocks have hit circuit breakers for the fourth time this past week. The phenomenon of “circuit-breaking” means a halt in trading for 30 minutes due to a sudden drop of market value - the Jakarta Composite Index - crossing the maximum drop threshold of 5%, a policy The Indonesia Stock Exchange (IDX) has announced amid a volatile equity market following the spread of the coronavirus and the ensuing oil price war. If the market value drops by more than 15%, trading will stop for the day. Upon reopening, the stock index reached a level of 3,932.32 this Friday (20/3) morning.

In just a couple of weeks, The JCI has lost 17.12 percent of its value so far this year, erasing all the gains the index has made since 2015. Caused by the coronavirus pandemic, foreign investors have fled the market in Indonesia. Indonesia’s central bank has booked foreign outflows this year of Rp105,1 trillion from the bond and equity market. Blue chip stocks – BBCA, BBRI, BBNI, and UNVR – all experienced 7 percent losses through the week, as a total of three hundred and sixty-four stocks ended the trading session in the red (loss of stock price) on Tuesday (17/3). Currency wise, The Rupiah reached a level of Rp16,000 to the US dollar this week; one of its lowest ever depreciation level, as international investors flee the equity market and retain cash investments, strengthening the Dollar; added with the fact that investors both international and domestic have dumped Indonesian equities, has pushed the Rupiah to the brink amid growing fears of the COVID-19 virus in the Southeast Asian country. “The markets are starting to price in an escalation in COVID-19 from a regional epidemic to a global pandemic,” said Alan Richardson, a regional fund manager at Samsung Asset Management in Hong Kong. Southeast Asia equities are getting hurt more than others “because they don’t have closed capital accounts,” he added.

However, emergency stimuli are on the way. Bank reserves from the central bank of Indonesia worth US$130,4 billion is ready to be utilized. Monetarily, the bank has also announced further rate cuts of 25 bps to a level of 4,5% during a press conference with the Governor of the bank, added with 6 other policies to stimulate consumer demand. On Monday (16/3) evening, OJK (the Financial Services Authority of the Republic of Indonesia) also announced it would allow companies to buy back its shares up to 20 percent of paid-up capital without prior shareholders meeting in order to ease market volatility. “This is as an effort to stimulate the economy and reduce the impact of the significantly fluctuating market,” the OJK said in a statement.

Source: Bloomberg CNBC Indonesia

Wall Street Journal

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