Finance Market Review on First Quarter 2012

Entering 2012, we are overwhelmed by the many developments that raised the prestige of Indonesia to a new stage in the financial world.On January 18, 2012, Moody's sovereign rating Indonesia increased to Baa3 from Ba1 with a stable outlook. Thus, the three credit rating agencies have placed Indonesia on the worth of investment, namely Moody's Investors Service, Fitch ratings, and Japan Credit Rating. In fact, Moody's precisely what had caused Indonesia to lose an investment worth status in December 1997.
Due to increased ratings of euphoria has caused the decline, the impact of Government Securities (SBN) benchmark 10-year tenor from 6.20 percent to 5.10 percent in less than two months. This is in line with anticipated market will be an increase in ratings from S & P, the last agency has not raised Indonesia's ranking.
In the first two months of the annual inflation rate also scored successive downward trend from 4.15 percent, 3.79 percent, 3.65 percent and 3.56 percent last into (this year compared with last year on March 1 yesterday.
After the announcement of inflation figures for January are at 3.65 percent, Bank Indonesia again surprised the market with a decline in the BI Rate by 25 bps to 5.75 percent on February 9 meeting of the Board of Governors. The last step is to fulfill the total decline in BI BI rate to 100 bps in less than six months. Still fresh in our memory, when the Bank lowered its benchmark interest rate by 50 bps in the month of November, when estimating market expectations for rate cuts by 25 bps only.
Step decrease in interest rates reflects increased optimism governments several times due to increased ratings sovereign rating Indonesia, the trend decline in inflation, coupled with the anticipated weakening of global economic growth triggered by the crisis of the Eurozone, to ensure that Indonesia will continue to carve a 2012 GDP growth target of between appropriate 6.3 and 6.7 percent. The move is also expected to slow the flow of funds will encourage the entry of foreign investment to replace the flow of hot money that has only led to volatility in the rupiah and the rise and fall of the composition of funding domestic banks.
Meanwhile in other parts of the world, on February 13, Moody's again downgraded several European countries such as Italy, Portugal and Spain. The decline was accompanied by changes outlook to negative for AAA ratings from Austria, France and Britain. Is this then encourages the flow of funds move to Indonesia?
Let us see at a glance the performance of some sectors of the financial markets during the first 2 months in 2012. Those who have SBN portfolio since the beginning of the year, has recorded a 10-12 percent yield - ie it can be seen in reduced SBN benchmark 10-year yield of 6.2 percent to 5.1 percent, the share of foreign ownership since early January SBN also shows an increase amounting to Rp 7.48 trillion to Rp 230.34 trillion in the past February 27. JCI is engaged in the range 3850-4040 and as of this writing is still trying to move down through the psychological level of 4,000.
At least all the events that occurred in the first quarter of 2012 made many investors think a review of their asset portfolios. The majority assumes that the benchmark rate is now at the bottom level to wait for further economic development.
The lack of success of the 4000 JCI to penetrate the many possible levels of profit taking by foreign investors, as shown by the magnitude of the negative YTD net outflow. A similar action occurs in SBN market where the returns of 8-12 percent this year has been very sensible to do take profits especially when the exchange rate strengthened under the 9100 levelRp today.
Entering the second quarter, we need to look further impact due to adjustment of the fuel price subsidy of Rp 1,500-Rp 2,000 and plan to increase electricity tariff 1 April next. Citing comments BI Governor Nasution said after opening a seminar Indonesia Economic Policy in a Challenging Global Economy, if fuel prices rise above Rp 1,000 to the effects of inflation can reach above 5.5 percent.
Another threat to the inflation Q1 is an old enemy, namely food prices, as reflected in the magnitudes of the core inflation rate continues to move up, now at the level of 4.31 percent - while headline inflation was 3.61 percent in the position.
Thus, it is natural that within 1-2 months, there was a correction in the market, especially the profit-taking in trade bonds, together with a wave of hedging (hedging) portfolio through the instrument of exchange rates. Correction would bring the prices of Indonesian assets to the level of interest for re-entry level for the sustainability of the bullish market sentiment.
In line with the Bank Indonesia to ensure continuous improvement and maturity of market participants push the exchange rate volatility is excessive. Not to mention the 'weapons stash' the bond stabilization framework that increases the level of foreign investor confidence will market the depth of SBN and Indonesia's commitment to free exchange rate regime.
In the long run, subsidized fuel price adjustment would be a very positive impact on reducing the budget deficit, in line with rising crude oil prices through the level of 100 U.S. dollars per barrel. Timing subsidized fuel price increase at the beginning of the second quarter was also considered appropriate that as people's purchasing power increased by a healthy (retail sales increase to about 20 percent of data), and the consumer confidence index rising to 119.2 in January from 116.6 (December 2011). Inflation is low and the available supply of liquidity in the market will ensure the durability of the negative effects of reduced flow rate of the world economy as a result of the crisis in Europe.
In the end, the market also needs to move toward equilibrium adjustments, for the creation of a new equilibrium is more in line with changes in parameters.