Weak Rupiah: Which Stock Sectors Gain and Lose?

JAKARTA, KOMPAS.com - The weakening of the rupiah exchange rate against the US dollar is expected to pressure several sectors in the Indonesian stock market. Issuers with high dependence on imported raw materials, dollar-based capital expenditures, and foreign currency debt are considered vulnerable to the negative impacts of the strengthening of Uncle Sam’s currency. On the other hand, this situation becomes a positive sentiment for export-based issuers because their revenues are in US dollars, while most operational costs remain in rupiah. Previously, the Garuda currency had slumped to Rp17,400 per US dollar. Senior Market Analyst at Mirae Asset Sekuritas, Nafan Aji Gusta, said the rupiah’s weakening has the potential to trigger cost-push inflation or a significant increase in production costs for companies with high import exposure. According to him, the pharmaceutical sector is the group most vulnerable to the impact of the rupiah’s weakening. The strengthening of the US dollar can erode the profit margins of pharmaceutical issuers, especially if companies do not raise product selling prices to consumers. However, raising selling prices also carries the risk of declining consumer purchasing power. “This can create cost-push, right? Cost-push. If the sector or issuer most at risk is definitely pharmaceuticals. Because their import exposure is high, right? Most pharmaceutical raw materials are still imported, up to 90 percent,” Nafan said when contacted by Kompas.com. Besides the pharmaceutical sector, retail and electronics issuers are also expected to face considerable pressure. According to Nafan, the products sold by these sectors are largely based on global prices or imports, making them highly sensitive to US dollar exchange rate movements. He assessed that pressure on consumer purchasing power could also worsen the conditions for the retail and electronics sectors.