WRAPUP 2-Indonesia stocks, rupiah skid on economy concerns, Mon

Aug 19, 2013 7:01am EDT

JAKARTA, Aug 19 (Reuters) - Indonesia's rupiah slid to its lowest level in
four years on Monday, shares fell the most in 22 months and government
bonds slumped on concerns over a much wider current-account deficit in
Southeast Asia's biggest economy. Indonesia's glow as an investor haven
has started to look tarnished, with rapid growth slowing, the current
account deficit widening sharply, while a recent jump in inflation and
moves to slow expansion bank lending will likely cut domestic demand.
Some economists said Indonesia increasingly faces the uncomfortable
prospect of being lumped by investors together with fellow Asia giant,
India, whose markets have been falling even sharper over worries about
its economic management. "There is a risk that Indonesia could be like
India, (with market risk) dominated by perception instead of economic
fundamentals," Eric Alexander Sugandi, economist at Standard Chartered
in Jakarta, said.
At 0954 GMT, the rupiah was trading at 10,490 to the dollar, down just
over 1 percent and its lowest level since May 2009. The rupiah has slid 8.2
percent this year. As it slides, the central bank has dug deep into its
foreign-exchange reserves to defend it, stoking concerns in markets. The
yield on 10-year notes rose to the highest since March 2011 though later
eased back to 8.338 percent. The driving factor for both developments
was late Friday's news that the current account deficit in the second
quarter was worse than expected at $9.8 billion, one of the biggest on
record.
At the end of July, Indonesia's foreign-exchange reserves were $92.7
billion, down $12.4 billion from two months earlier and more than 25
percent below their August 2011 high, say economists at Credit Suisse.
"Although the current level of reserves is still equivalent to a reasonably
healthy 5.5 months of imports, the (central) bank can't continue to burn
reserves at the current rate without the market worrying about a 'crisis'
scenario unfolding," it said in a note to clients on Monday.
The Jakarta Composite Index (JCI) closed down 5.58 percent at 4,313.52,
its biggest one-day fall since October 2011. That followed a 2.5 percent
drop on Friday when foreign investors pulled almost $90 million from
Indonesian stocks on fears over the impact a coming stimulus cut in the
United States and tighter global liquidity would have. The plunge wiped
out all the benchmark's gains since the start of the year. The biggest
losses have been bank stocks. The finance sector index fell 3.81 percent
on Friday after the central bank unveiled moves to contain bank lending,

including trimming the maximum ratio for loans-to-deposits. On Monday,

it plummeted another 6.34 percent.
'NEW EQUILIBRIUM' Indonesian Finance Minister Chatib Basri said on
Monday he was "not worried" by the rupiah weakness and predicted that
the current account deficit, though it would remain into next year, would
narrow. Late last month, Bank Indonesia Governor Agus Martowardojo said
the currency had reached a "new equilibrium", suggesting the central
bank was comfortable with the weakening rupiah that helped exports as
long as its fall was not too abrupt. The central bank also has said it did
expect pressure on the current account to ease in the second half of the
year. Indonesian government bonds have also been hit.

"Bond yields have been quite volatile since last week, affected by the
weakening rupiah and high inflation, coupled with rising treasury yields
globally," said Handy Yunianto, head of fixed income research at Mandiri
Sekuritas in Jakarta. A weaker global economy threatens to further cut into
the exports of natural resources on which Indonesia's economy has long
relied. At the same time, high inflation limits the prospects for domestic
consumption to pick up much of the slack.
The latest market reverses follow a fairly upbeat budget for next year,
announced on Friday by President Susilo Bambang Yudhoyono, who
forecast 2014 growth would rise to 6.4 percent next year and the inflation
rate would slide back to 4.5 percent. (In July, the annual inflation rate
spiked to 8.61 percent.) Most economists say growth this year will
struggle to hit 6 percent, especially as the central bank has raised its
benchmark interest rate in a bid to contain high inflation. But one
Indonesian fund manager said he expected interest in buying shares will
return if the index drops some more, reaching between 4,000 and 4,200.
"Overall, the JCI is still valued at a slight premium to regional indices in
term of P/E (price-earning) ratios. That's why investors are still waiting for
cheaper prices to jump into the market," said Jemmy Paul, head of
investment at Sucorinvest Asset Management. (Additional reporting by
Viparat Jantraprap in Bangkok, Adriana Nina Kusuma and Rieka Rahadiana
in Jakarta and Jongwoo Cheon in Singapore; Writing by Jonathan Thatcher;
Editing by Richard Borsuk)

WRAPUP 2-Indonesia stocks, rupiah skid on economy concerns, Mon

Aug 19, 2013 7:01am EDT
" There is a risk that Indonesia could be like India , ( with market risk ) is
dominated by perception rather than economic fundamentals , " said Eric
Alexander Sugandi, economist at Standard Chartered in Jakarta. This opinion he
advances to respond the exchange rate that declined very sharply . This value is
the lowest value over the last four years . Due to the falling value of the rupiah, a
spike in inflation is everywhere and moves to slow the expansion of bank lending
is likely to cut domestic demand.
At 0954 GMT, the rupiah was trading at 10,490 to the dollar , down more than 1
percent and the lowest level since May 2009. The currency has dropped 8.2
percent this year. As it slides, the central bank has to dig deep into the reserves
to sustain it, sparking fears in the market. In late July, Indonesia's foreign
exchange reserves were at $ 92.700.000.000, down $ 12.400.000.000 of the
previous two months and more than 25% below their October 2011, says
economist at Credit Suisse. "Although the current level of reserves is equivalent
to 5.5 months of imports is quite healthy, central banks can not continue to burn
up at the current level without worrying about the markets 'crisis' scenario takes
place," he said in a note to clients on Monday. This figure is far worser than
expected.
In the midst of this messy Indonesian economy foreign investors pulled nearly $
90 million of Indonesian stocks followed by the drop in numbers of Jakarta
Composite Index ( JCI ) by 5.58 percent at 4,313.52. Financial sector index fell
3.81 percent on Friday after the central bank announced measures to contain
bank loans, including maximum ratios for trimming loan-to-deposit. On Monday,
it fell another 6.34 percent .
Last month, the Governor of Bank Indonesia Agus Martowardojo said the
currency had reached "a new balance", suggesting the central bank comfortable
with the weakening of the rupiah which helps exports during the fall is not too
abrupt. Similar with the opinion of the Minister of Finance Indonesia Chatib Basri .
Recent market reversed following a fairly optimistic budget for next year, was
announced on Friday by President Susilo Bambang Yudhoyono, who expects

growth in 2014 will increase to 6.4 percent next year and the inflation rate will be
rolled back to 4.5 percent. ( In July , the annual inflation rate rose to 8.61
percent) Most economists say growth this year will struggle to hit 6 per cent,
mainly because the central bank has raised interest rates in an effort to keep
inflation high." Overall, the index was still valued at a slight premium to the
regional index in terms of P/E (price - earnings) ratio. That's why investors are
still waiting for a cheaper price to jump into the market ," said Jemmy Paul , chief
investment officer at Sucorinvest Asset Management