Economist: JCI strengthening trend hinges on government bond yields

Jakarta - The yield on government bonds is one of the determining factors for the strengthening trend of the Jakarta Composite Index (JCI), according to Rully Arya Wisnubroto, Head of Research and Chief Economist at PT Mirae Asset Sekuritas Indonesia. He stated that the sustainability of the JCI’s rally will depend heavily on the development of several macro indicators that are of concern to investors, particularly the movement of the rupiah exchange rate and government bond yields. “If the rupiah can sustain its strengthening and the yield on 10-year government securities (SBN) declines gradually from its peak level above 7.3 percent towards a lower range, Indonesia’s risk premium will decrease,” he said in an official statement received in Jakarta on Tuesday. “This condition will open up room for the return of foreign capital inflows into both the bond and stock markets,” Rully continued. Rully stated that the current strengthening is still dominated by a technical rebound factor, thanks to the support of a more decisive monetary policy implementation by Bank Indonesia (BI) and the de-escalation of geopolitical tensions. BI raised its benchmark interest rate (BI-Rate) by 25 basis points to 5.50 percent on 9 June. Meanwhile, the United States and Iran have reportedly reached a peace agreement and will sign a Memorandum of Understanding on 19 June. Nevertheless, Rully estimates that the market will continue to observe the development of global sentiment, the direction of monetary policy, and the stability of the domestic financial market. He noted that although signs of improvement are beginning to appear, investors are still waiting for stronger confirmation that the decline in the risk premium and the stabilisation of the rupiah can continue sustainably before optimism towards the market strengthens again. “Foreign capital flows still tend to be selective,” added Rully Arya Wisnubroto.