Chance of Stronger Rupiah Ahead

JCI has experienced a significant net foreign outflow for the past 1 month. As of the closing on May 14th, JCI recorder net foreign sell of IDR22.15tn, weighing down JCI to go higher. Big cap stock prices has suffered big time from this outflow, making passive fund performances to take a big hit as the heavy weight index constituents dipped.

JCI 1 Month Domestic and Foreign Transaction Summary

One of the most important thing that contributes to this outflow is the concerning IDR exchange rate against the US Dollar. As we know that now USD IDR exchange rate once exceed IDR 16,200 / US Dollar and now remain stable above IDR 16,000 / US Dollar, making the prospect of capital gain from stock trading less lucrative due to the exchange rate risk that may offset the return.

YTD USD IDR Exchange Rate

However, Indonesia's trade balance recorded a surplus of IDR3.56bn in April from IDR4.47bn in March. This trade balance came above ours and consensus projection of IDR3.3bn, showing a glimpse of hope for Indonesia macroeconomic backdrop amidst the unresolved global uncertainties.

Imports activity grew by +4.62% YoY from -12.76% in March. Oil and gas imports grew by +0.18% from 10.34% in March, while non-OG imports grew by +5.68% from -16.72% in March. Consumer goods imports grew +0.56% YoY, capital goods grew +13.57% YoY, and raw material grew +3.29%.

Exports activity grew by +1.72% YoY from -4.19% in March. Oil and gas exports grew by +7.24% (yoy) from -3.95% in March, while non-OG exports grew by +1.33% YoY from -4.21% in March. Agriculture, forestry & fisheries grew +2.07% YoY, manufacturing grew +8.05% YoY , and mining contracted -16.96% YoY .

Indonesia Historical Trade Balance

Recent data indicate that Indonesia's trade balance remains robust this year. The increase in import activity, particularly in capital goods, suggests a resurgence in the manufacturing sector. Notably, imports from China were higher in April 2024 compared to April 2023. This aligns with the observed uptrend in China's PMI manufacturing figures, indicating that China’s manufacturing activity is gaining momentum. Consequently, China's economic recovery is expected to positively impact Indonesia's trade dynamics.

China Caixin Manufacturing PMI

The surprisingly rising terms of trade will favorably affect Indonesia’s trade surplus. We anticipate that Indonesia’s export activity could increase due to the expected higher demand from China. Despite growing concerns regarding geopolitical tensions, we believe that Indonesia’s terms of trade will remain positive if commodity prices remain stable.

The rupiah stands to benefit significantly from a stable trade surplus, even amid uncertainty surrounding the Federal Reserve's policy moves this year. A robust trade surplus will provide a solid foundation for Bank Indonesia to maintain the current interest rate this month.