• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Indonesia's Currency: Asia's Best, Worst and Best Again

The Indonesian stock market has rallied sharply since May 20, and the rupiah is turbocharging Indonesian assets with an extra 15% kick. But is the country opening at exactly the wrong time?
By ALEX FREW MCMILLAN
Jun 08, 2020 | 08:00 AM EDT

Indonesia's stock market is the unlikely star of Monday's rally in Asia. The Jakarta Stock Exchange index closed up 2.5%, leading neighboring Singapore's Straits Times index up 1.2%.

Indonesia, the most-populous nation in the world after China, India and the United States, is easing its coronavirus lockdown in Jakarta. The capital as of Friday permitted some public transport to resume, and allowed access to places of worship, with curbs on numbers. Offices and shopping malls will reopen over the next two weeks.

Indonesia has avoided a nationwide lockdown. The capital, home to some 10 million people, has been particularly hard-hit by the virus, accounting for 28.0% of the country's 31,186 coronavirus cases. There have been 1,851 deaths.

The world's largest archipelago is hard to govern at the best of times. Curbing the spread of Covid-19 across its 17,500 islands is a thankless task, one that raises the prospect of the virus resurfacing once full travel resumes.

The Indonesian rupiah plunged in March to its lowest level against the U.S. dollar since the Asian financial crisis in 1998. Since then, it has rebounded 15%, with a particularly fast pace in June, a rebound that Commerzbank dubs "staggering," at an "unimaginable" pace.

Investors withdrew assets from emerging markets at the height of the coronavirus market panic. Some of that money is now returning, with Indonesia's central-bank governor crediting the country's coordinated monetary and fiscal response. But it's likely that Bank Indonesia will now do its best to prevent further fast gains in the currency, which make Indonesia's exports less competitive.

Asian currencies have gained an average of 4% against the U.S. dollar since their lows in March. That has been driven by the gains in emerging Southeast Asian economies such as Malaysia, Thailand and the Philippines, as well as the electronics exporting nations of South Korea, Taiwan and Singapore. The most-watched Asian currency, the Chinese yuan, has been treading water at 7.10 to the U.S. dollar.

Over the past month, foreign investors bought a net 11.3 trillion rupiah ($797 million) in Indonesian stocks, and 13.9 trillion rupiah ($978 million) in Indonesian government bonds. The Jakarta Composite Index has risen 11.5% since May 20, and 28.7% since its low on March 24. But its recent rally leaves it 18.9% lower than its pre-Covid level, meaning the equity rally may have further to go.

The currency volatility fits a pattern. Prior to Covid-19, the rupiah was the strongest performing currency in the region. That gave way to Southeast Asia's worst performance in the Covid-19 selloff, and now back to top performance again.

From peak to trough, the currency blew out from 13,531 rupiah to the U.S. dollar on January 28 to 16,565 to the greenback on March 24. It is now back to 13,953 rupiah to the dollar.

That's a two-month loss of 22.4%, followed by a 15.8% advance. Foreign investors and central-bank bond buying have driven the moves.

The Indonesian economy looks set to slip from 5.0% growth in 2019 to a 2.3% decline in 2020, according to Oxford Economics. It should then rebound and then some, up 6.6% in 2021.

The growth is coming on the backs of the 268 million people, who have seen GDP per capita rise from $1,783 per person immediately after the Asian financial crisis, where it was at the epicenter, to $3,870 per capita now.

We're always hearing about an "emerging middle class" in emerging nations. But you feel it when you visit a country like Indonesia. There's an obvious gulf between the big cities and the rest, but disposable income is visibly on the rise in urban areas.

The number of households with average annual income of more than $10,000, the traditional cutoff for "middle class" status, has risen from around 6 million homes in 2006 to 31 million now. It is an addition that's equivalent to the total population of the 10-largest cities in the United States, combined, all rising to join the modern world.

Government support for Covid-19 recovery has been smaller in scale than in most Asian nations. The stimulus measures amount to 4.2% of GDP, the lowest in the region. That's in large part due to the government's limited budget - it's on a negative outlook from ratings agencies like Standard & Poor's, at risk of a sovereign downgrade.

Indonesia may be relaxing its lockdown, but it may also be relaxing at the wrong time. The country reported virtually no cases of Covid-19 until the last week of March, which observers considered highly unlikely on the ground. A lack of testing rather than a lack of cases surely explained the low count.

The country entered its partial lockdown on April 10, but only for the capital and surrounding heavily populated areas. It brought in a travel ban into and out of greater Jakarta only on April 21, ahead of Ramadan, when some 20 million people normally move around to celebrate the end of the fasting month with extended family. Foreign passport holders have been barred from entry into Indonesia since April 2.

The emerging middle class is a liability when the richest, most-developed parts of the country are shut down. Consumer spending now equates to 55% of the economy, and the investment bank ING expects consumer sentiment to remain poorly until at least year end.

The number of new daily cases remains persistently elevated at 611, double the rate experienced until it started to rise in late May. ING expects only mild further appreciation in the Indonesian currency, if investors start to doubt the wisdom of easing restrictions and consumers remain skittish.

While the currency is mapping international macro trends, gains in the stock market will likely continue only if the easing measures do not result in an increase in Covid cases. Jakarta may be open again for business, but we shall see if it is wise to do so, so quick.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Currencies | Economy | Investing | Markets | Stocks | Trading | World | Asia | Emerging Markets (South America, Asia, Middle East) | Global Equity | Coronavirus

More from Stocks

Chevron Is Not Only Greasing the Wheels, It's Turbocharging Them

Jim Collins
Jan 26, 2023 5:07 PM EST

Let's look at why CVX's buyback news is a big deal for investors.

Traders Hold Their Noses and Buy

James "Rev Shark" DePorre
Jan 26, 2023 4:27 PM EST

The dull market got a boost from Tesla, but this is not the kind of action we want to see.

The Long-Term Trend of Booz Allen Hamilton Is Bullish

Bruce Kamich
Jan 26, 2023 12:15 PM EST

If the earnings report is bearish, here's what to know.

As the Bears Battle the Bulls, the Market Action Remains Choppy

James "Rev Shark" DePorre
Jan 26, 2023 11:40 AM EST

GDP, unemployment claims, and durable goods reports were better than expected, creating hope that the Fed will be able to create a soft economic landing.

Charter Communications: The Path of Least Resistance Is Higher

Bruce Kamich
Jan 26, 2023 11:27 AM EST

Here are the key price levels to watch in the days ahead.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 03:06 PM EST BOB LANG

    LEAPS Webinar

    This week, I offered a free webinar session talkin...
  • 02:53 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 04:58 PM EST REAL MONEY

    The Latest AAP Podcast!

    Listen in as AAP Tackles Earnings, the Fed, Recess...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login