Tempted by Higher Interest Rates, Foreign Investors Leave Indonesia Stock Market
Nevertheless, the outlook for the stock market remains positive until the end of this year.
REPUBLIKA.CO.ID, JAKARTA -- Indonesia's stock market is under pressure as foreign investors continue to sell off. Based on data from the Indonesia Stock Exchange (BEI), foreign investors recorded a net sell (net sell) of Rp 5.83 trillion as of October 27, 2023.
The conditions are also reflected in the combined share price index (IHSG) which has undergone a correction since the beginning of the year. On a year-to-date (ytd) basis IHSG has trimmed 1.75 percent, even in the past month, IHSG's decline stands at more than three percent.
The factor of high interest rates is called to be the cause of the deterioration in the performance of the domestic stock market. On Thursday (19/10/2023), Bank Indonesia (BI) unexpectedly raised its benchmark interest rate to six percent.
“This created turmoil in the market so that the next few days stocks were depressed,” said Infovesta Kapital Advisory research analyst Arjun Ajwani on Monday (30/10/2023).
In addition, soaring U.S. government bond yields pushed 10-year Treasury securities (SBNs) up. This is due to sentiment from the US central bank the Federal Reserve is judged too hawkish by the market.
According to Arjun, the rise in bond yields in the US that briefly broke through the five percent level and the depressed rupiah exchange rate headed towards Rp 16,000 could push BI to raise interest rates again further. This is projected to again hurt the performance of the domestic stock market.
Nevertheless, Arjun sees that the outlook for the stock market is still positive until the end of this year. He projects IHSG to have a chance of breaking through to the 7,200 level. The projections are supported by a domestic economy that is still resilient regardless of exchange rates and the value of the trade balance.
Macroeconomic indicators are still conducive to economic growth, lower inflation, still high purchasing power, still high credit growth and a still strong manufacturing sector. In addition, the current stock market valuation is considered very attractive
“There is also potential window dressing in December which is expected to push IHSG before the end of the year. The IHSG target later this year is 7,200,” he concluded.
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