Withdrawal of the United Kingdom from the European Union or Brexit would raise global volatility. Brexit may also hamper trades in Europe and cause declining demand for goods and services from emerging markets, including Indonesia. A research by PT Henan Putihrai Sekuritas predicted this volatility puts investors face risk of high rupiah depreciation.
While foreign capital inflows to bond and equity markets remain positive, non-deliverable forward (NDF) rupiah of 12-month tenor shows that rupiah is transacted with 7% discount against the US dollar. This indicates rupiah potential to fall deeper against the dollar is quite high. On Wednesday (6/15) rupiah exchange rate against dollar stays at Rp 13,390. Year-to-date wise, foreign capital inflows to domestic stock market reach Rp 6.09 trillion whereas to bond market Rp 81.27 trillion.
European contribution towards UK’s exports reaches 51%. If Brexit occurs, Henan Putihrai Sekuritas predicted trade barrier will increase; tax and excise will become negative sentiments for UK’s exports, thus they would affect its economic stability. Developing markets which have large trade transactions with UK and EU will be affected as well, for instance, China whose total exports to European Union reached 16%, with contribution of UK, Germany and the Netherlands amounting to 3% each. As of April 2016, Indonesia’s non-oil and gas export to European Union (27 countries) reached US$ 1.15 billion.
In addition to Brexit issue, the decision of the Federal Reserve (The Fed) on interest rate hike is also anticipated by market players. Henan Putihrai Sekuritas recommended investors to remain selective in picking stocks, focusing on defensive play-based ones with long-term catalysts and strong balance sheets. HP Sekuritas’ options are including ACES, LPPF, JSMR, WSKT, BSDE and CTRA. (*)
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