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(Bloomberg) — Indonesian stocks resumed their selloff Monday, weighed by weaker commodity prices, complicating efforts by regulators to shore up confidence in Southeast Asia’s biggest equities market.
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The benchmark Jakarta Composite Index fell as much as 5.1%, with miners and energy firms the biggest laggards. The decline tracked regional risk-off sentiment after metals prices plummeted and the dollar strengthened following President Donald Trump’s nomination of a new Federal Reserve chair.
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The selloff, the worst across Asian benchmarks, adds to Indonesia’s challenges as it seeks to avert a market downgrade after MSCI Inc.’s warning over investability last week. Regulators have since announced a series of reforms to stem the fallout, including directing sovereign wealth fund Danantara to instruct its asset managers to buy stocks and announcing plans to double minimum free float to 15%.
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The announcements, which came as top leaders at the financial regulator and exchange stepped down, are expected to improve the longer-term outlook of Indonesian assets and helped the benchmark rebound Friday after two days of losses. Still, many many remain uncertain over whether it will be enough to meet the index compiler’s demands.
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Nomura Holdings Inc. became the latest broker on Monday to downgrade Indonesian stocks, citing additional risks, joining Goldman Sachs Group Inc., which cut its recommendation last week.
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Here is what analysts are saying of the latest developments:
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Citigroup Inc. strategist Ferry Wong in Feb. 2 note
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- We view the new “appointments positively, as the new leadership has hands-on experience across trading, clearing, settlement and custody – key areas highlighted by MSCI – and should be able to move swiftly on execution”
- “We view the coordinated policy response as credible and timely, reducing risks of more-severe MSCI follow-up actions. Near-term volatility may persist, but support pillars should help stabilize markets”
- “We believe reforms plus domestic flows should underpin sentiment, suggesting the MSCI setback may be temporary.” Sees some of the points in the reform agenda unveiled by FSA and Danantara directly address MSCI’s core concerns
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PT Mandiri Sekuritas CEO Oki Ramadhana
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- “I’m 100% sure that our market will be better in the future with the transparency measures taken. It will take some time but we have seen commitment from the government and Danantara” to encourage better stock price discovery that is based on supply and demand
- Expects the regulators to regularly update investors on the reforms progress
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Morgan Stanley analysts, including Derrick Y Kam, in Jan. 30 note
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- The Indonesian authorities’ response to MSCI’s announcements are “encouraging developments”
- MSCI Indonesia is now cheap versus history, trading at 11.3 times the 12-month forward P/E, which is a 20% discount to emerging markets
- Still, “we believe valuations could be depressed for some time given the slowing trend in US$ earnings growth and ROE erosion”
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Indonesia Stock Analysts Association Chairman David Sutyanto
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- The “bold point” from the announcement on Sunday is that Danantara will act as a shock absorber in the market that may boost sentiment
- “As market participants, we see the reform plans will be able to at least calm investors down”
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