JAKARTA (TheInsiderStories) – Indonesia’s markets have been in worst performance for the last three years as foreign investors pull capital out of the country.

The rupiah fell as much as 0.5 percent to 14,003 to a dollar, before trading at 13,999 by 4:55 p.m. in Jakarta. The slide extended the currency’s loss to 3.2 percent in the past three months, making it the worst performer in Asia after India’s rupee.

Meanwhile, the Indonesian equity market has slipped more than 8 per cent in two weeks while the rupiah currency depreciated 1.4 per cent since mid-April as global investors yanked funds from emerging markets.

Overseas investors hold around 40 per cent of all Indonesian local-currency government bonds, compared to 18 per cent a decade ago, making this emerging market one of the most sensitive to global changes.

The sell-off is partially attributed to the ripple effects from Indonesia’s local-currency debt market, which up until recently has benefited from investors’ search for yield in a low-yield environment.

Since mid-April, about US$2 billion in foreign money has flowed out of rupiah-denominated debt in part of a global trend for capital returning to U.S. markets as investors look to rising bond yields and a stronger dollar.

The sell-off in local bonds has also created a spiral effect for U.S. dollars as investors convert proceeds, weakening the rupiah currency against the U.S. dollar. Meanwhile, foreign investors typically sell down Indonesian equities when the rupiah weakens since local company earnings become less attractive in dollar terms.

Over the past two weeks, foreigners have dumped almost $600 million in local equities, according to Indonesia Stocks Exchange (IDX).

Despite the changes in the global dynamics, Indonesia’s economy shows strong fundamentals with robust economic growth. The economy expanded 5.06 per cent in the first quarter of 2018, the same growth rate for all of 2017, which was also its best annual performance since 2013.

Email: elisa.valenta@theinsiderstories.com