All eyes seems to watch global geopolitical tension that kept on escalating from time to time. This lighting fast escalation of the tension has impacted investors' stance as it creates an unneglectable concern regarding their investment.
The surge of commodity prices, soaring demand for gold and other safe-haven assets, and huge foreign outflow from some of JCI big cap stocks caught some investors by surprise. The impact is significant, yet it may have just started.
Historical 1 Year Gold Price Chart (USD/t.oz)
Source: Trading Economics
In April 2024, Bank Indonesia hiked BI-Rate to 6.25%, surpassing both consensus and our projections. The lending and deposit facility rates were also maintained at 7.00% and 5.50%, respectively.
This decision aims to bolster the stabilization of the rupiah exchange rate and to take proactive measures in light of growing global economic uncertainty. Bank Indonesia forecasts economic growth to range between 4.7% and 5.5% in 2024, reflecting the heightened uncertainty in the global economy.
Source: Bank Indonesia, Sucor Sekuritas Research
From the perspective of our economist team, BI's latest decision is a signal that geopolitical risk is the greatest challenge for Indonesia's market as we had anticipated since the beginning of this year.
In our view, it is true that historically Rupiah has always been depreciating against the US Dollar, and judging from Rupiah's performance compare to some other currencies, actually Rupiah is performing quiet well. However, the steep depreciation of Rupiah against US Dollar also can't be ignored.
1 Year Historical Thailand Baht to Rupiah Exchange Rate
1 Year Historical Japanese Yen to Rupiah Exchange Rate
That being said, we believe that BI-rate is likely to rise further to stabilize rupiah exchange rate as the conflict between Israel and Iran is likely to escalate further following the US Congress' approval of a USD95bn aid package for Ukraine and Israel for their war support.
Putting all of the above into consideration, this might be a good time to go long on US Dollar earner stocks such as exporting coal companies, i.e. ADRO and ITMG. We also favor other commodity stocks which could be the closest proxy to gold demand such as ANTM and MDKA As we still see the possibility of an even worse depreciation of Rupiah ahead.