Indonesian stocks fell, with the benchmark index slumping to the lowest level since March 2014, on concern China’s currency devaluation may weaken exports from Southeast Asia’s largest economy.
The Jakarta Composite Index declined 2.7 percent to 4,622.59 at the close of trading, led by industrial companies. The measure has dropped 16 percent from a record high in April. PT Unilever Indonesia slid 3.1 percent to a five-month low, while PT Astra International tumbled to the lowest level since December 2013.
The People’s Bank of China cut its daily reference rate for the yuan by a record 1.9 percent, triggering the currency’s biggest one-day loss since January 1994. Shipments to China, Indonesia’s third-largest trading partner, had already fallen 26 percent in the first half of 2015, according to government data. Declining exports would pose further risks to an economy growing at the slowest pace since 2009 as state spending lags targets, foreign investment weakens and commodity prices slump.
“A weaker yuan could affect Indonesia’s exports to China, particularly commodities, and may have an impact on global growth as well,” said Arief Wana, director at PT Ashmore Asset Management Indonesia, who’s not adding to holdings at the moment. “Valuations have become more reasonable but whether that can be a justification to buy is yet to be seen, considering the slowdown in economic growth.”
Indonesia’s gross domestic product grew 4.67 percent in the second quarter, well below President Joko Widodo’s target of at least 7 percent during his term. Second-quarter profits have dropped at 57 percent of companies tracked by Bloomberg that have reported earnings so far.
The Jakarta index is trading at 2.3 times price-to-book ratio, the lowest level since July 2009. While that’s down from a 2010 high of 3.4, it’s still 63 percent more expensive than the MSCI Emerging Markets Index.
All nine industry groups on the measure fell. Consumer staples producer Unilever was the biggest drag on the benchmark index. PT Bank Rakyat Indonesia retreated 4 percent and auto distributor Astra International slid 5 percent.