Indonesian rupiah rallies most since July 2014 as funds return

[JAKARTA] Indonesia's rupiah surged the most since July 2014 and stocks headed toward the highest close in a more than a month amid signs investors are returning to the nation's assets.

The rupiah jumped 1.3 per cent to 14,305 a dollar as of 10:47 am in Jakarta after rising as much as 2.2 per cent earlier, prices from local banks show. The currency has strengthened 2.3 per cent this week, paring its loss this year to 13 per cent. The Jakarta Composite Index of shares advanced 2.2 per cent, following a 3.2 per cent gain on Monday.

The rupiah led a rally in Asian currencies on Tuesday amid speculation the Federal Reserve will delay raising interest rates until next year. There's a "multi-decade opportunity" in emerging markets including Indonesia following the recent selloff, Michael Hasenstab, who oversees 30 funds with US$143 billion in assets at Franklin Templeton in San Mateo, California, said in an interview. President Joko Widodo last week asked state energy firm PT Pertamina to recalculate domestic fuel prices as part of a third batch of policy stimulus set to be announced on Thursday.

"The rupiah is a big beneficiary of fund managers commenting on buying emerging-market assets on cheaper valuations," said Saktiandi Supaat, the head of foreign-exchange research at Malayan Banking Bhd. in Singapore. "All the measures the government and the central bank put in place show their perseverance in supporting the rupiah." Foreign funds pulled US$1.2 billion from Indonesian stocks and 11.86 trillion rupiah (S$1.18 billion) from the country's local-currency bonds last quarter amid an emerging-market selloff driven by a slowdown in China's economy and the US moving closer to raising interest rates. The Jakarta share gauge has rallied 8 per cent since closing at a two-year year low on Sept 28.

The yield on 10-year sovereign bonds rose one basis point to 9.15 per cent, after falling 67 basis points over the previous four days, according to prices from the Inter Dealer Market Association. It reached a five-year high of 9.81 per cent on Sept 29.

"There's a mix of local and foreign investors returning to the market as sentiment turns for the better," said Ikhwani Fauzana, head of rates trading at PT Bank Negara Indonesia in Jakarta.

Bank Indonesia began intervening in the onshore forwards market this month, and is also seeking to curb the short-term supply of rupiah in the local market in order to stem borrowing to buy dollars. The authority sees the currency's fundamental value at 13,300 to 13,700, Deputy Governor Perry Warjiyo said Sept 30.

Maybank's Supaat forecasts the currency will decline to 15,000 a dollar by year-end, but he said central bank policies to stabilise the rupiah and the government's resolve in attracting investment may bring it closer to 14,500.

US employers added fewer positions in September than the lowest estimate in a Bloomberg survey, according to a report released Friday, a sign the Fed may not increase borrowing costs this year.

"There isn't anything fundamental going on," said Sean Yokota, the Singapore-based head of Asian strategy at Skandinaviska Enskilda Banken AB. "After the payroll numbers people were caught long dollars and there's a positioning wind- down," he said, adding that he thought the rally in the rupiah was temporary.

PT Astra International, which distributes automobiles and operates mines in the country, jumped 9.4 per cent, providing the biggest boost for the benchmark stocks index. PT Bank Mandiri rose 6.4 per cent and PT Bank Central Asia advanced 3.6 per cent.

"Investors are seeing signs that the rupiah has stabilized and won't decline significantly further," said Kim Kwie Sjamsudin, head of research at PT Yuanta Securities Indonesia in Jakarta. "Once it is seen stabilising, people will find valuations of Indonesian stocks attractive."

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