Indonesia’s composite stock index, the IHSG, was forecast to decline on Monday 31 August due to portfolio rebalancing adjustments by MSCI, the global index manager. Nafan Aji Gusta, senior technical analyst at Mirae Asset Sekuritas, said the index could form a reasonable correction after a bearish doji star candle appeared.
Rebalancing and Technical Levels
MSCI announced rebalancing details on 13 August, with the effective date set for 31 August. Some stocks were expected to exit the Small Cap index. Nafan Aji Gusta, Senior Technical Analyst at Mirae Asset Securities, identified technical support for the IHSG at 6,453 and 6,353, with resistance at 6,552 and 6,695.
Gusta noted that moving averages and momentum indicators showed positive signals, with MA20 and MA60 displaying a positive crossover, Stochastics KD showing positive signals, and RSI having potential to form a golden cross pattern. Yet these gains faced headwinds from external forces.
Fed Policy and Emerging Markets
Federal Reserve Chair Kevin Warsh delivered a speech at the Jackson Hole Economic Symposium with signals described as hawkish toward US monetary policy. Gusta said such conditions could put pressure on the rupiah while increasing emerging market risk premium, including Indonesia. For IHSG specifically, he viewed the initial impact of Warsh’s speech as tending to be negative, warning that if expectations of US interest rate increases rose, US Treasury yields could climb and the US dollar could strengthen.
Gusta named Bank Rakyat Indonesia, Ciputra Development and Energi Mega Persada in his note for the session, each with a price target in rupiah. A separate research team at BRI Danareksa expected the index to trade volatile but rangebound, with technical pressure peaking towards the 31 August close and easing afterwards, since most of the sentiment had been priced in since the 13 August announcement.
Frequently asked questions
What is Indonesia's currency?
Indonesia's currency is the Indonesian rupiah, denoted as IDR. Stock prices on the Indonesian Stock Exchange are quoted in rupiah.
Why is Indonesia's currency so weak?
Analysts identified emerging market risk premium as a pressure point on the rupiah, potentially linked to shifts in US monetary policy expectations. Stronger US dollar conditions, stemming from higher expected US interest rates, could weaken the rupiah alongside other emerging market currencies.
Related: Indonesia's IHSG rises 0.46% at open, banks lead gains
Source: MSCI
