Taper & Biden's Act: Positive Missile To The Market?

Earlier this week, US President Joe Biden signed an infrastructure legislation bill worth US$ 1 trillion or equivalent to Rp14.200 trillion (exchange rate of Rp14.200/US$). By signing this legislation bill, funding for infrastructure projects will immediately be disbursed and significantly escalate US economic growth. This infrastructure project encompasses roadway, bridge, harbour, rail transit, clean water, electrical grid, and broadband. Furthermore, before the end of the year, an economic policy package worth US$ 1.75 trillion (Rp24.850 trillion) will also be disbursed. The infrastructure policy and economic package that has been liquidated will positively impact the US economy, later affecting other countries. Other than that, the fiscal policy has also positively impacted the stock exchange. Wall Street could potentially strengthen and drag other stock exchanges, including IDX Composite. Biden’s fiscal policy era made the US economy “flooded” with money again. Thus the inflation risks could remain high, even higher. If this occurs, The Fed could aggressively increase interest rates. Currently, the market observes The Fed will raise interest rates to 3 times next year. If inflation remains high or even higher in the next few months, the Fed will be predicted to become more hostile.

The strengthening of Wall Street on Tuesday (11/16) certainly brought positive sentiment to Asian Market. As per (11/16), Technology sector index, Nasdaq, leads the reinforcement for 0.76% to 15,973.86, followed by S&P for 0.39% to 15,973.86 and Dow Jones for 0.15% to 36,142.22. The core retail sales, excluding the automotive sector, increased 1.7% higher than the previous month 0.7% and expected 1%. Home Depot sped up 5.7% after reporting its sales increase on the 3rd quartile of 2021 for 9.8%. Walmart, however, briefly increased in Tuesday’s early trading, but turned down to 2.5% and burdened the Dow Jones index. Data indicates the US economy is still on the recovery line in the middle of high inflation. In Indonesia, IDX Composite closed with 35.178 points or 0.53% to level 6,651.208 on (11/16) Tuesday’s trade closing. The highest sector is raw materials sector 0.93%, followed by financial sector 0.82%, primary consumer goods sector 0.74%, transportation sector 0.68%, industrial sector 0.37%, and energy sector 0.33%. Foreign recorded the biggest net buy was on PT Bank Jago Tbk (ARTO) stock for Rp88.6 billion and closed by 1.28% to Rp15,825 per stock. Moreover, foreign also bought PT Perusahaan Gas Negara Tbk (PGAS) stock for Rp44.9 billion, closed by 1.01% for Rp1,500 per stock.

Bank Indonesia had also prepared to issue a policy to handle the tapering situation. Having learned from the 2013 Fed's tapering off policy, to counter this year’s tapering, Bank Indonesia has prepared more than just relying on benchmarking the interest rate policy. "We are also stabilizing the rupiah exchange rate in the face of Fed tapering and global spillovers," said Bank Indonesia’s Governor, Perry Warjiyo, at the 15th International Conference on Thursday (9/22). He also stated that the rupiah exchange rate and the interest rate of government securities  could not be measured solely from theories due to the complex and uncertain current situation. Therefore, Bank Indonesia has to intervene in the market through spot, Domestic Non-Delivery Forward (DNDF), and purchasing government securities in the secondary market. Regarding Indonesia’s capital market prospect, the Investment Specialist at PT Manulife Aset Manajemen Indonesia (MAMI), Dimas Ardhinugraha, stated that the bonds market is more prepared to face the change in global sentiment following the recent tapering policy. In Indonesia, factors such as low foreign ownership, more dynamic bonds, and attractive returns are expected to suppress the effect of the Fed's stricter policies in 2022. Meanwhile, the digital economy sector offers a promising long-term prospect as industry trends towards digitalization.

Sources

CNBC Indonesia

Tempo

Kompas

Brought to you by Mandiri Tunas Finance