Rupiah Plunges, Stock and Bond Indices Fall More Than 5%

Global economic uncertainty has impacted investors in the domestic financial market. The depreciation of the Indonesian Rupiah against the US dollar has prompted foreign investors to exit the domestic stock and bond markets. This has caused the Jakarta Composite Index (IHSG) and the Indonesia Bond Pricing Agency (IBPA) Composite Bond Index (ICBI) to move into negative territory. Concerns over the trade war, the Argentinian crisis, and Indonesia's trade deficit have led to the Rupiah experiencing the sharpest decline among Southeast Asian countries.

According to Bloomberg data, the Rupiah exchange rate closed at Rp 14,885 per US dollar on September 18, 2018, representing an 8.75% depreciation compared to its year-end position of Rp 13,555. As a result, stock prices on the Indonesia Stock Exchange fell, causing the IHSG to correct by 8.56% to 5,811.79 from its year-end level of 6,355.65 in 2017. Similarly, the ICBI has fallen 5.43% this year to 229.78 from its year-end position of 242.98.

Foreign fund managers are exercising extreme caution before re-entering the global financial market. In addition to the impact of falling stock and bond (debt instrument) prices, the investments of these foreign fund managers will also be eroded by the weakening Rupiah if converted back to their home currencies. In real terms, foreign investors' losses will be further compounded by inflation, which reached 3.2% (YoY) in August 2018.