Indonesia Stock Exchange main hall. (Photo: The Insider Stories)

JAKARTA (TheInsiderStories) – Asian stock markets drop after Dow Jones posts second biggest points fall more than 1,000 points and entered correction territory.

Japan’s Nikkei 225 fell 2.51 percent, with losses seen in most sectors. Automakers, financials, manufacturers and technology stocks traded firmly in negative territory.

The Nikkei 225 was in correction territory, having declined around 12 percent from its 52-week high as of Friday morning.

In the first session of today trading, Jakarta Composite Index (JCI) closed down to 1.10 percent to 6,472.51 points following US stock exchange which fell more than 4 percent.

The surge in market volatility this week may force speculators who had bet on calm markets to unwind their positions.

The sell-off started last Friday morning when the U.S. labor department reported that average hourly earnings increased more than expected in January.

Though it was a good news for workers who has flat wages for years, investors became nervous because it meant rising wage pressures and inflation could force the Federal Reserve to raise interest rates higher than the market was expecting.

Bond yields have climbed decisively in the last six weeks, with the yield on 10-year U.S. treasuries topping 2.8 per cent for the first time since mid-2014—about half a percentage point above last year’s average.

And on Thursday, The Bank of England kept its key interest rate at 0.5 per cent but cautioned that it could rise more quickly than expected to help bring down inflation. The BoE also ramped up its outlook for the British economy, despite persistent uncertainty surrounding Brexit.

Stock markets experienced a sharp correction followed by a robust rebound—much greater volatility than in a while.

A majority of commentators argued that persistent risks of recession and deflation warranted the expansionary monetary stance.

Prominent economists and investors went further, posited that the U.S. and other advanced economies had entered a ‘new normal’ of weaker growth and very low inflation, and that interest rates would therefore remain extremely low for the foreseeable future. This consensus view became baked into market expectations of interest rates.

During times of stress and uncertainty, U.S market tycoon Warren Buffett recommends keeping a level head. In response to wild market fluctuations back in 2016, he told CNBC that buy-and-hold is still the best strategy.

‘Don’t watch the market closely,’ he advised those worried about their retirement savings at the time.

‘If they’re trying to buy and sell stocks, and worry when they go down a little bit…and think they should maybe sell them when they go up, they’re not going to have very good results.’

Indonesia Supported with Strong Data

Valbury Asia Securities Vice President of Research and Analysis Nico Omer Jonckheere point out how the Fed’s expected interest rate increase in March 2018 proved negative for the Rupiah to break through the Rp13,600 per US dollar level.

‘The improvement in US macroeconomic data, particularly for employment data, followed by expectations of rising inflation, as well as US government bond yields, weighed on emerging-market currencies,’ he said.

Sentiment from the U.S, he added, also shifted market expectations of the Fed’s rate increase opportunities to 3~4 times in 2018 from just 2~3 times.

Binaartha Securities analyst Reza Priyambada expects a strong indicator in Indonesian macro economics can counter sudden external volatility.

Indonesia has just gained ‘Investment Grade’ status from three international rating agencies, and the country posted 5.02 per cent growth in 2017, higher as a matter of fact than analyst consensus.

The International Monetary Fund (IMF) projected annual inflation to remain at around 3.5 per cent, with well-anchored inflation expectations.

Indonesia’s current account deficit is expected to remain at near 2 per cent of gross domestic product, due to firm commodity prices and robust exports.

‘It is expected that domestic sentiment that tends to remain positive can keep a deeper Rupiah exchange rate,’ he surmised.

He added that Bank Indonesia is also expected to stoutly defend the Rupiah currency, forestalling any deeper depression, so this does not add to domestic financial market participants’ concerns.

 

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