Indonesian stocks tumbled, capping the biggest four-day plunge since 2011, amid growing concern that capital outflows will accelerate. The rupiah dropped to the weakest level in four years.
The Jakarta Composite Index fell 3.2 percent to 4,174.98, extending its four-day slide to 11 percent. The gauge has dropped 19.9 percent from its record close on May 20. The rupiah fell 1.8 percent to 10,685 per dollar after reaching 10,728 earlier, the weakest level since April 2009, prices from local banks show. The cost to insure Indonesian debt against default rose to an almost two-year high yesterday, according to CMA.
The nation’s shares have tumbled at the fastest pace worldwide this quarter amid concern the quickest inflation in four years will spur the central bank to tighten monetary policy further after it raised the benchmark interest rate in June and July. The Jakarta index sank 5.6 percent yesterday after data showed the country had a record current-account deficit last quarter. Speculation that the U.S. Federal Reserve will soon withdraw stimulus has fueled the retreat.
“We are in bear-market territory,” said Priyo Santoso, the chief investment officer at PT Mandiri Manajemen Investasi in Jakarta. “We have been defensive in our strategy.”
Overseas investors have pulled $255 million from local stocks in the past two days, exchange data compiled by Bloomberg show. PT Telekomunikasi Indonesia and PT Bank Rakyat Indonesia were among the biggest drags on the index today as trading volumes climbed to 79 percent above the 30-day average.
The Jakarta gauge pared losses toward the end of the day after falling as much as 5.8 percent earlier. Its 14-day relative strength index declined to 26.6, below the 30 threshold that some investors see as an indication a rebound is imminent. PT Bank Mandiri gained 2 percent after losing as much as 7.2 percent, while PT Astra International, the nation’s largest company by market value, finished unchanged after dropping 2.5 percent earlier.
“Some investors are buying some oversold stocks, particularly Bank Mandiri,” said John Teja, a director at PT Ciptadana Securities in Jakarta. “An index below 4,200 is basically a good entry point, however trading direction tomorrow will still be determined by foreign investors.”
PT Jamsostek, Indonesia’s biggest pension fund, is buying “blue chip” stocks, President Director Elvyn Masassya said in a mobile-phone text message today.
The retreat in shares, which sent valuations to the lowest levels in 14 months today, is creating buying opportunities in banks and consumer companies, said PT Schroder Investment Management Indonesia’s Kiekie Boenawan. The Jakarta index fell to 12 times estimated profit for the next 12 months, the lowest level since June 2012.
“We see this drop as an opportunity to buy selectively those stocks that have been overpriced in the past,” Boenawan, the Jakarta-based head of investment at Schroder Investment Management Indonesia, the nation’s biggest mutual-fund manager with 37.9 trillion rupiah ($3.5 billion) under management, wrote in an e-mail yesterday.
The rupiah fell the most since September 2011. Five-year credit-default swaps insuring the Southeast Asian nation’s debt against default rose 43 basis points to 283 yesterday, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
Inflation reached 8.6 percent in July, the fastest pace since February 2009. The current-account deficit swelled to $9.8 billion in the second quarter, the most in data compiled by Bloomberg going back to 1989, the central bank reported on Aug. 16. The shortfall will narrow in the current three-month period, Finance Minister Chatib Basri told reporters after the market closed yesterday.
“The government hasn’t been able to restore confidence in the market,” said Norico Gaman, the head of research at PT BNI Securities in Jakarta. “Investors now put more weighting on the risk that they have to take, no longer at the potential returns that they might have. Their main concerns right now are inflation and the exchange rate.”
The rupiah spot rate has dropped 7.1 percent against the dollar this quarter, the worst performance among Asia’s 11 most-traded currencies.
A fixing by the Association of Banks in Singapore used to settle derivative contracts was set at 10,699, the weakest since April 2009, from 10,499 yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 144 basis points, or 1.44 percentage points, to 15.03 percent, according to data compiled by Bloomberg.
The yield on the nation’s bonds due May 2023 rose nine basis points to 8.46 percent, the highest level since March 2011, prices from the Inter Dealer Market Association show. Indonesia raised 1.54 trillion rupiah from an Islamic debt sale today, exceeding its 1.5 trillion-rupiah target, with investors bidding for 7.4 times the amount offered.
The Fed will start tapering its monthly bond purchases in September, according to 65 percent of analysts surveyed by Bloomberg this month.
“The rupiah will still be under selling pressure due to global sentiment, along with local assets,” said Mika Martumpal, head of treasury research and strategy at PT Bank CIMB Niaga in Jakarta. “Risk indication surged following disappointment over Bank Indonesia refraining from raising rates to support the currency and attract inflows.”