(Jakarta, 26th) Fueled by earlier declines in crude oil prices, central bank rate hikes, and government efforts to stabilize market confidence, the Indonesian stock market has recently shown strong rebound momentum, with the Jakarta Composite Index approaching bull market levels.
On Thursday (July 23), the Jakarta Composite Index surged as much as 1.9% during trading, rebounding 20% from its low in early June this year, just one step away from entering bull market territory. However, the index later gave back its gains and closed down a slight 0.3%.
Traders noted that the recent stock market rally has been largely driven by government measures aimed at boosting confidence in the sluggish capital market. On Wednesday (22nd), Bank Indonesia kept its benchmark interest rate unchanged at 5.75% and announced a number of incentives aimed at attracting capital inflows and supporting the rupiah. At the same time, the government also strengthened fiscal discipline, including scaling back the previously much-discussed and sizable free nutrition meal program.
Mohit, partner and portfolio manager at Singapore-based asset management firm SGMC Capital, said: “I believe the low point on June 8 should hold, as the market is now increasingly inclined to expect stabilization rather than deterioration.”
The Jakarta Composite Index has risen 12% so far in July, leading major global stock markets. However, despite improved market sentiment, concerns remain about market transparency and the economic policy direction of President Prabowo, with the index still down around 27% for the year to date.
In addition, the Indonesian stock market still faces the test of whether international index compiler MSCI will downgrade it to a “frontier market.” MSCI will make an announcement later this year. Foreign investor sentiment also remains cautious, and whether the market can continue its rally depends on the implementation of reform policies.
In addition, the Indonesian stock market still faces the test of whether international index compiler MSCI will downgrade it to a “frontier market.” MSCI will make an announcement later this year. Foreign investor sentiment also remains cautious, and whether the market can continue its rally depends on the implementation of reform policies.
Jitania Batra, co-head of global emerging markets equity strategy at JPMorgan, said in a Bloomberg TV interview that once the market begins to price in the expectation that Indonesia will remain in the emerging market benchmark index and that MSCI recognizes the measures taken by policymakers, “I believe capital will start to flow back to Indonesia, and this rally will become even more sustainable.”