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[JAKARTA] Indonesian stocks entered a bear market as capital outflows accelerate amid a weakening economy and the prospect of higher US interest rates.
The Jakarta Composite Index fell 2.4 per cent to 4,335.95, the lowest close since Jan 27, 2014. The gauge dropped 5.4 per cent this week, extending its slump from an April 7 record high to more than 20 per cent. The Indonesian rupiah weakened for a fifth day to its lowest level since 1998, while the yield on the government's 10-year bonds rose to an 18-month high.
Foreign investors pulled US$185.4 million from Indonesian stocks on Aug 20, the largest daily outflow since Dec 24. Indonesia's economy is growing at the slowest pace in six years as President Joko Widodo struggles to deliver on plans to revitalize growth. The weak currency is limiting scope for the central bank to cut interest rates, while tumbling commodity prices and a deepening economic slowdown in China threaten to slash export revenue.
"From what we are seeing right now, it seems we can only expect a recovery in the second half of next year," said Jeffrosenberg Tan, fund manager at PT Sinarmas Asset Management. "We aren't deploying our cash holdings just yet, even though current valuations appear to be more attractive," said Mr Tan, whose Simas Satu mutual fund outperformed 91 per cent of peers over the last five years.
The Jakarta Composite trades at 22.6 times reported earnings, down from its peak of 27.6 times in April. That's still almost twice as expensive as the MSCI Emerging Markets Index.
Overseas funds have sold a net US$1.35 billion of the country's shares in the past 12 months, the most among Asian markets tracked by Bloomberg after Thailand. Indonesia's economy grew 4.67 per cent in the second quarter, the weakest since Sept 2009, while company profits dropped at 88 percent of companies tracked by Bloomberg in the quarter ended June 30.
PT Bank Central Asia fell 3.3 per cent to an 11-month low, PT Bank Rakyat Indonesia retreated 2.3 percent and PT Telekomunikasi Indonesia lost 4.9 per cent, the three biggest drags on the benchmark gauge.
The Jakarta Mining Index fell 1.2 per cent to the lowest since January 2009, while the Jakarta Agricultural Index dropped to a two-year low. The two gauges have tumbled at least 30 per cent from this year's peaks as the slide in commodity prices hurts plantation and mining companies. Indonesia is the world's largest producer of palm oil and the biggest exporter of thermal coal and tin.
"Lower commodity prices, which have led to a slump in export revenue and a sharp deterioration in Indonesia's terms of trade, will continue to weigh on the economy," Gareth Leather, Asia economist at Capital Economics Ltd, said in a note dated Aug 5. "If, as we expect, there is no improvement in the second half of the year, pressure on the central bank to reduce interest rates will build." The rupiah's spot rate declined 0.5 per cent to 13,943, the weakest level since Aug 1998, prices from local banks show. Offshore, one-month non-deliverable forwards slid 0.7 per cent to 14,194 per dollar, data compiled by Bloomberg show.
Bank Indonesia will remain in the market to prevent the exchange rate from overshooting further, director Nanang Hendarsah, said by text message on Friday.
The yield on the government's benchmark 10-year bonds climbed 10 basis points to 8.92 per cent, the highest level since Feb 2014, according to prices from the Inter Dealer Market Association.