Indonesia: Rupiah’s Slump hitting importers

  • The IDR slump to its lowest against the USD since the Asian financial crisis two decades ago is making for a double hit to Indonesian stocks, thanks to rising costs to service overseas debt and increasing pressure on margins among the country’s importers.
  • Indonesian companies more than doubled their foreign borrowing since 2012, with USD33.1bn of dollar bonds outstanding as of the end of Mar 18, Bank for International Settlements data show.
  • That load is tougher to service with the IDR tumbling almost 9% against the USD thus far.
  • Five of the 10 members of the Jakarta Composite Index of stocks with the biggest foreign-exchange losses would have reported a profit in 2Q18 had they avoided foreign-currency debts, according to data compiled by Bloomberg. Foreign exchange debt makes up 72% of the total on average for those five.
  • For importers, the rupiah’s drop threatens to crimp margins. Most Indonesian companies had planned on an exchange rate of 13,500 to 14,000 per USD in 2018, according to Maynard Arif, head of research at DBS Vickers Securities. But it’s likely to break through that range, averaging 13,989 so far in 2018.
  • “Not all companies have reflected the full impact of the weaker rupiah on their earnings in 1H18,” said Singapore-based Arif. “More adjustment will come in 2H18, and these companies would have to strike a balance between profit margins and the impact on sales from higher prices.”
  • The Jakarta Composite Index has dropped about 8% in 2018, heading for first annual retreat since 2015, when China hard-landing fears hit emerging markets. Indonesian bonds have also suffered, with benchmark 10-year yields surging well over 2% to 8.66%.

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