Market Commentary - Q3 2020
Market Commentary - Q3 2020
Inflation continued to trend down in 3Q20 where Indonesia booked monthly deflations three months in a row. September inflation was recorded at 1.42% YoY due to deflationary trends in food and air transport prices. Weak domestic demand still put pressure on imports. However, exports and imports contraction have started to narrow in August, hence, Indonesia recorded trade surplus of about USD10.9bn as of August. As of August, the government has recorded budget deficit of 3.05% of GDP with spending started to pick up towards the end of the quarter. Forex reserve rose from USD131bn to USD137bn in 3Q20. Bank Indonesia cut its policy rate by 25bps in July to 4.00%. The Rupiah closed at IDR14,893/USD by the end of September as the currency was under pressure due to the noises on Bank Indonesia independence.
JCI index closed in negative territory in 3Q20 booking return of -0.7% QoQ. The market was mostly supported by local investors as foreign investors still posted outflow of USD2bn during the quarter. The quarter started positive following the gain streak from 2Q20 as market was flooded with liquidity while investors are hopeful on development of vaccine. As government policies have been pro-growth while the 2021 state budget indicates increase spending infrastructure, investors turned more risk-on in the middle of 3Q20. However, things took a turn south as noises on BI independence came up while Jakarta was placed in a stricter PSBB.
Most equity markets globally posted negative return in 3Q20 while Asian markets posting mixed returns. After posting gain streaks, the US market took a dive at the end of the quarter as investors hope for another fiscal stimulus kept getting delayed while investors turned risk-off before the election. The European market followed the same trend with rising concern of resurgence of COVID-19 cases and delays in the EU recovery fund. In Asia, China’s recovery continues well though tension with the US put pressure to Hong Kong. Investors are waiting for news on vaccine and outlook for economy recovery.
Fixed Income still managed to book positive return in 3Q20 as the 10-year government bond yield fell from 7.2% to 6.9%. The bond market posted foreign outflow of USD260mn in 3Q20. The bond market started off positive with ample of liquidity, weak DXY, and dovish central banks. Moreover, investors were hopeful on vaccine development. The market took a turn when noises on Bank Indonesia’s independence came out which spooked foreign investors. In addition, reinstatement of Jakarta PSBB also caused concerns among investors. Meanwhile, the US Treasury yield closed flat at 0.7% while the INDON30 yield fell from 2.6% to 2.3%. Hence, spread between the US Treasury and INDON30 yield narrowed.
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