JAKARTA (TheInsiderStories)—Asia’s major stocks opened lower on trading today (30/5) due to fears of political crisis in Italy.
The Nikkei index opened down 1.37 per cent to the level of 22,051.97, the Shanghai index weakened 1.26 per cent to level 3.081.14, the Hang Seng Index weakened 1.23 per cent to 30,109.37, the Kospi index fell 0.42 per cent to 2,446.81, and the Strait Times index weakened 1.85 per cent to 3,453.48. The Jakarta Composite Index (JCI) also opened down 0.68 per cent to the level of 6,027,8.
The weakens occur due to fears of political crisis in Italy. The country is facing a snap election after President Sergio Mattarella vetoed anti-establishment Five Star and League political parties’ Minister of Economy choice of Paolo Savona. Mattarella appointed the former International Monetary Fund (IMF) official Carlo Cottarelli as interim prime minister instead with the task to form a government.
Mattarella refused Savona’s nomination for threatening to bring Italy out of the European Union. As a result, the government becomes unformed.
This condition made the Mattarella will almost certainly lose a parliamentary vote of confidence. It then leads to the new election within 60 days to 70 days.
The political turmoil in Italy, the third largest economy in the Euro single currency, could bring negative effect to the European and global economy. Many economists predict the effect would be much worse than Greece who its debt crisis shook global market nearly a decade ago. Italy’s economy is 10 times larger than Greece and has debt above €2 trillion, equivalent to more than 130 per cent of annual economic output. Italy’s debt was the highest in the world after Japan and Greece.
Italy’s political crisis bring a threat of exit from the EU. If this happens, it would be a significant weakening in the EU single currency system. Remember in the UK exit from the EU puts so much pressure on the world financial market. Italy’s effect on the EU could be bigger as it is the third largest economy in the system.
Bank Indonesia Meeting
Bank Indonesia holds an incidental meeting today and most market participants expect a rate hike. Still, the sentiment from likely rate hike by BI is not sufficient to lift the JCI. Yet in the beginning trading of this week, JCI closed stronger 1.55% to 6,068.33 due to expectations of interest rate hikes. The transaction value was recorded at Rp8.4 trillion with a volume of 9.5 billion shares.
Previously, the newly appointed BI governor Perry Warjiyo has several times mentioned that the central bank will anticipate the Federal Reserve meeting/The Fed on June 13 that likely to raise the benchmark rate by 25 basis points to 1.75 per cent to 2 per cent.
“We want to be ahead of the curve,” said Warjiyo in a press conference on Monday (28/05).