Indonesia and Philippines have shown improvement in their macroeconomic fundamentals and the benchmark stock market indices have surged as a result, year to date in 2014. The Jakarta Stock Exchange Composite Index of Indonesia and the Philippines Stock Exchange Index (PSEi) are the two performing indices in the Asia Pacific region next to India in the year of 2014. We explore the reasons behind the recovery that is seen in these indices that have surged year to date in 2014.
Indonesia is the largest economy in South East Asia. Industry accounts for the largest share of GDP (46.5 % of total GDP). Within industry, the most important is manufacturing, which has been one of the main growth engines (24 % of total output). Mining and quarrying accounts for 12 %, construction for 10 % and electricity, gas and water supply for 0.75 %. Services constitute 38 % of total GDP. Within services, the most important are: trade, hotel and restaurants (around 14 % of GDP); transport and communication (7 % of GDP); finance, real estate and business services (7 % of GDP) and government services (6 %). Agriculture accounts for the remaining 15 %.
The inflation rate in Indonesia was recorded at 7.25% in April of 2014. The inflation rate had reached levels of 8.79% in September 2013 but has declined consistently from February to May 2014. Inflation trending down is extremely positive for the economy that was seen in the rise in the JCI by 15.88% from year to date. Inflation Rate in Indonesia averaged 11.57% from 1997 until 2014, reaching an all-time high of 82.40% in September of 1998 and a record low of -1.17 % in March of 2000.
The GDP in Indonesia expanded 5.21% in the first quarter of 2014 over the same quarter of the previous year, the slowest pace since 2009. The central bank cut its 2014 GDP growth forecasts to 5.1-5.5% from the previous 5.5-5.9% outlook, as exports continue to struggle due to the mineral export ban. The GDP growth accelerated to a higher than expected 5.72% in the last quarter of 2013 which helped the benchmark indices to gain some momentum in the first quarter of 2014. GDP Annual Growth Rate in Indonesia averaged 5.42% from 2000 until 2014, reaching an all-time high of 7.16 % in the fourth quarter of 2004 and a record low of 1.56 % in the fourth quarter of 2001.
Unemployment Rate in Indonesia decreased to 5.70 % in the first quarter of 2014 from 6.17 % in the third quarter of 2013. Unemployment Rate in Indonesia averaged 6.15 % from 1982 until 2014, reaching an all-time high of 11.24 % in the third quarter of 2005 and a record low of 2 % in the fourth quarter of 1983.
The benchmark interest rate in Indonesia is currently at 7.50%. At its May 8th, 2014 meeting, Bank Indonesia left the benchmark interest rate on hold at 7.5 %, as widely expected. The interest rate remained unchanged since November 2013 on account of elevated inflation levels and is expected to remain at that level until the inflation cools down and stays within the comfort zone as perceived by the Central Bank. Interest Rate in Indonesia averaged 7.72 % from 2005 until 2014, reaching an all-time high of 12.75 % in December of 2005 and a record low of 5.75 % in February of 2012.
Indonesia recorded a Current Account deficit of 4191 USD Million in the first quarter of 2014. Current Account in Indonesia averaged -303.57 USD Million from 1981 until 2014, reaching an all-time high of 3795 USD Million in the third quarter of 2006 and a record low of -10133 USD Million in the second quarter of 2013. The current account deficit is expected to narrow in the first three months of 2014. The current account to GDP ratio is expected to be around 2.06 % in the first three months of 2014, lower than the 2.12 % recorded in the previous quarter.
The Indonesia 10Y Government Bond yield increased to 8.06 % in May from 7.93 % in April of 2014. The yields have declined from 9.1% in February 2014 to 8.06% in May 2014 indicating rising investment as a result of improvement in the macroeconomic conditions that are discussed above. Indonesia 10Y Government Bond averaged 9.85% from 2003 until 2014, reaching an all-time high of 20.76% in October of 2008 and a record low of 4.99% in February of 2012.
Industrial Production in Indonesia increased 4.85% in March of 2014 over the same month in the previous year. Manufacturing PMI in Indonesia increased to 51.10 in April of 2014 from 50.10 in March of 2014.
The Indonesia Stock Market (JCI) increased to 4893.91 in May from 4840.15 in April of 2014. The index has risen 15.88% from 4327.27 in beginning of January 2014 to 4893.92 at end of May 2014. Stock Market in Indonesia averaged 1141.90 from 1983 until 2014, reaching an all-time high of 5214.98 in May of 2013 and a record low of 61.56 in November of 1986.
The Indonesian Rupiah (IDR) decreased to 11698 in May from 11562 in April of 2014. IDR averaged 7959.39 from 1991 until 2014, reaching an all-time high of 16650 in June of 1998 and a record low of 888.11 in November of 2010. The IDR has shown strength as it has appreciated by 3.97% against the USD from year to date in 2014. Improvement in the economic fundamentals has increased the value of the IDR from year to date.
Service sector is the biggest contributor to the Filipino economy and accounts for 57 % of total GDP. Within services the most important segments are: trade, repair of motor vehicles and household goods (17 % of total GDP); real estate, renting and business activities (11 %); transport, storage and communication (8 %); financial services (7 %) and public administration, defence and social security (4%). Industry accounts for 31% of GDP. Within the industry, manufacturing (22% of total GDP) and construction (5 %) are the most important while Agriculture contributes the remaining 12% of GDP.
The GDP in Philippines expanded 5.70% in the first quarter of 2014 over the same quarter of the previous year. The Philippine economy grew an annual 5.7% in the first quarter of 2014, slower than a revised 6.3% increase in the previous three months. It is the slowest expansion in over two years, as the impact of last year’s typhoon still weighs on farm output. The Annual GDP growth rate is on a continuous decline since second quarter of 2013 that reported 7.9% growth. GDP Annual Growth Rate in Philippines averaged 5.04% from 2001 until 2014, reaching an all-time high of 8.90% in the second quarter of 2010 and a record low of 0.50 % in the third quarter of 2009.
The inflation rate in Philippines was recorded at 4.10 % in April of 2014 has increased from 2.1% levels in August 2013. Inflation Rate in Philippines averaged 8.91 % from 1958 until 2014, reaching an all-time high of 62.80 % in September of 1984 and a record low of -2.10 % in January of 1959.
Philippines trade gap decreased to USD 145.7 million in March of 2014 from USD 253 million deficit on a year on year basis. Exports grew 12.3% year-on-year, driven by a 10% surge in electronic sales. The economy recorded a Current Account surplus of USD 591.50 Million in December of 2013 and had increased to record high levels of USD 2107 million in October 2013 that helped the stock market indices surge from year to date. Current Account in Philippines averaged USD 60.07 Million from 1980 until 2013, reaching an all-time high of USD 2107 Million in October of 2013 and a record low of USD -884 Million in July of 1997.
At its May 8th, 2014 meeting, Philippines’ Central Bank left its key policy rate unchanged at 3.50%, but raised the banks’ reserve requirements by 1% point for the second straight meeting, aiming to reduce liquidity growth.
The Philippines 10 Year Government Bond yield decreased to 4.14% in May from 4.41 % in April of 2014. The Philippines 10 Year Government Bond yield averaged 9.13% from 2001 until 2014, reaching an all-time high of 18.64% in January of 2001 and a record low of 3.04% in May of 2013.
Industrial Production in Philippines decreased 0.80% in March of 2014 over the same month in the previous year. Industrial Production had shown continuous growth from 0.3% in June 2013 to 20.2% in December 2013 along with strengthening of the Current Account position, contributing to the stock market rally that began from December 2013 till date in 2014.
The Philippines Stock Market (PSEi) decreased to 6647.65 in May from 6707.91 in April of 2014. The index has surged 14.51% from year to date in 2014 mainly on account of increase in the Current Account Surplus to record high levels and growth in industrial production as discussed above. Stock Market in Philippines averaged 2278.07 from 1986 until 2014, reaching an all-time high of 7392.20 in May of 2013 and a record low of 129.52 in February of 1986.
The Philippine Peso increased to 43.84 per USD in May from 44.58 per USD in April of 2014. The Peso has more or less remained in the range of 42 to 45 per USD even though the stock market indices have seen a rise from year to date. Philippine Peso averaged 47.12 per USD from 1998 until 2014, reaching an all-time high of 56.34 per USD in October of 2004 and a record low of 37.84 per USD in May of 1999.
Table 1: Monthly Market Movement