Indonesia’s rupiah fell the most this year and stocks and bonds dropped as China’s yuan devaluation put pressure on Asian currencies and President Joko Widodo made changes to his cabinet.
The rupiah slid 1.4 percent, the most since Dec. 15, to close at 13,788 a dollar, prices from local banks show. The currency reached 13,831 earlier, the weakest level since August 1998. The Jakarta Composite Index of shares tumbled 3.1 percent to 4,479.49, the lowest close since February 2014. The yield on sovereign bonds due September 2026 climbed 20 basis points to 8.79 percent, according to the Inter Dealer Market Association.
China, the nation’s largest export market, cut the yuan’s reference rate by 1.6 percent, after a 1.9 percent reduction on Tuesday. Widodo appointed Darmin Nasution, a former central bank governor, as coordinating minister for the economy. The president also chose a new trade minister, but retained Bambang Brodjonegoro in the finance portfolio. The economy slowed for a second straight quarter in the three months through June.
“The reshuffle announcement came at an already volatile time, as the market didn’t expect China to be so aggressive,” said Ikhwani Fauzana, head of rates trading at PT Bank Negara Indonesia in Jakarta. “Choosing old hands is a good decision as the transition will be smoother.”
The rupiah is down more than 10 percent this year, the worst performance in Asia after Malaysia’s ringgit.
The currency’s recent declines have been excessive, causing it to trade far below its fundamental value, Bank Indonesia Governor Agus Martowardojo said in a statement on Wednesday. The central bank has been and will remain in the market to stabilize the rupiah, he said.
Gross domestic product increased 4.67 percent in the second quarter, the least since the three months through September 2009, data showed last week. Widodo’s government has turned to tweaks in taxes and regulations to revive growth as state spending lags behind estimates.
The performance of Indonesian stocks is dependent on Widodo’s ability to drive through economic reforms, Mark Mobius, chairman of the emerging markets group at Franklin Templeton Investments, said last week.
The JCI has declined 19 percent from a record high on April 7. PT Telekomunikasi Indonesia slid 4.8 percent and PT Unilever Indonesia fell 4 percent, the biggest drags on the index.
The Jakarta Mining Index lost 2.9 percent. The gauge has slumped 43 percent from last year’s record high as sliding commodity prices hurt plantation and mining companies. Indonesia is the world’s largest producer of palm oil and the biggest exporter of thermal coal and tin.
The JCI will probably drop further toward 4,000, which would be a good level to buy, said Alan Richardson, a fund manager at Samsung Asset Management Ltd. in Hong Kong. Aberdeen Asset Management Ltd. is selectively buying local stocks during the slump, as further losses won’t be as bad as in the past six months, said Bharat Joshi, a Singapore-based fund manager.
The yield on the 10-year sovereign bonds has risen 35 basis points this week. One-month non-deliverable forwards on the rupiah fell 2.2 percent on Wednesday to 14,040, data compiled by Bloomberg show.
China’s “devaluation may impact other regional central banks, triggering a currency war,” said I Made Adi Saputra, a fixed-income analyst at PT BNI Securities in Jakarta. Foreign investors were selling sovereign debt on Tuesday and that was continuing on Wednesday, he said, adding that he forecast the 10-year yield to be at 8.6 percent to 8.7 percent at the end of the year.