October 29, 2024
JCI Foreign Outflow

Market Commentary
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The JCI has recently experienced significant foreign net outflows, with approximately IDR250bn on the 28th and and IDR511bn on the 29th of October, making a significant IDR4.2tn of foreign outflow in a week.
 

Global economic uncertainty and risk-off Sentiment is one of the first things that popped through our head when asked what caused the outflow. International markets are currently facing various pressures, and in times of uncertainty, foreign investors tend to adopt a risk-off approach, moving capital out of emerging markets, like Indonesia, and into safer assets such as US Treasuries or dollar-denominated assets.
 

DXY 1 Month Performance

Rupiah Depreciation is definitely the next. The recent weakening of the Indonesian rupiah against the US dollar may have also influenced foreign investors to reduce their exposure in Indonesian equities. A weaker rupiah reduces the value of returns for foreign investors when converted back to their home currency, making Indonesian assets comparatively less attractive.

 

USD IDR 1 Week Performance

We also believe that potential oil price surge contributes a major role in this outflow. Rising oil prices can increase inflationary pressures and impact Indonesia’s trade balance, especially given that Indonesia still imports a significant portion of its energy needs. Higher oil prices can lead to a rise in import costs, which might further pressure the rupiah and contribute to outflows, as investors may anticipate challenges in Indonesia’s economic stability and corporate earnings.

 

Indonesia’s Crude Oil Imports (barrels per day)

 


The last but not least, is the upcoming US presidential election and global market sentiment. Political developments, especially in the US, add a layer of uncertainty. As global markets react to factors such as changes in leadership or policy outlooks, investors often reassess their portfolio allocations, sometimes resulting in capital outflows from more volatile markets.

In summary, the foreign net outflows from the JCI can be attributed to a combination of global economic uncertainty, currency depreciation, rising oil prices, and geopolitical factors, prompting investors to seek stability elsewhere. In our view, some of these problems are still far from solved, as seen from the current consistent outflow.

Therefore, we recommend an overweight position in stocks with low foreign ownership and advise maintaining a defensive stance until there is further clarity on the global turmoil.


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