DEPOK (eNBe Indonesia) - Global financial and stock markets turned into a two-day sell-off this week as the collapse of Silicon Valley Bank (SVB) raised concerns about a broader financial and economic crisis.
For Indonesia, the composite index of the Indonesia Stock Exchange (IDX) lost 2.14% on Tuesday as investors sold off shares.
Financials suffered the most, down around 2%, amid mounting worries over contagion risk from the collapse of Silicon Valley Bank in the US. Assurances from President Biden and other policymakers did little to calm market sentiment.
Foreign investors recorded net sell of Rp1.33 trillion yesterday, cutting year to date net buy to Rp1.95 trillion. While the rupiah was stable, and most Asian currencies, appreciated amid the selloff in the US Dollar due to collapse of SVB.
Tradingeconomics.com reported that the yield on the 10-year US Treasury note rose past the 3.6% mark on Tuesday after tanking to a five-week low of 3.51% in the previous session as investors digested the latest inflation print, while instability in the US banking system continued to support demand for safer government debt.
The collapse of SVB, of course, will affect the flow of investment into Indonesian startups.
Bear in mind that startups in the largest economy of the Southeast Asia too a lot of funding from global investors in the past few years, creating jobs needed during the Covid-19 pandemic.
We noticed significant drop in investment inquiries for Indonesian startups and growing number of workers kicked out from the sector in recent months.
SVB collapse also affected commodities. Oil prices extended the decline on Tuesday. Meanwhile, hopes for a recovery in Chinese demand and a weaker dollar kept a floor under prices.
Malaysian palm oil futures fell for a third session to under MYR4,000 per ton on Tuesday, the lowest in one month. The recession concerns due to instability in the US banking sector pressured crude oil prices and limited demand for biofuel alternatives.
Gold held above US$1,900 an ounce on Tuesday after jumping more than 2% in the previous session, underpinned by speculations that the Federal Reserve could pause its tightening campaign following the collapse of Silicon Valley Bank in order to avoid a broader financial and economic crisis.
Back to financial market, the collapse of SVB is said to have only caused temporary panic in the banking sector.
Fundamentally, the Indonesian banking sector is still quite good. The business model of banking in Indonesia is very much different, when compared to SVB and Signature Bank.
Indonesian banking, especially big banks, is also quite conservative in lending disbursement, not targeting creditors with high risk profiles and business sectors with high risk.
The performance of the domestic financial sector was in a good position with high liquidity and a low risk ratio. This is also supported by consistent annual profit growth.
Indonesian policymakers believe impact to domestic economy will be limited. Datapoints suggested a strong first two months of the year.
The revenue side of the State Budget expanded 38.7% year-on-year, maintaining its surplus, while PMI manufacturing at 51.2 (expansive mode), and consumers confidence index at 122.4.
Microeconomic indicators also looked good with motorcycle sales increasing 56.3% year-on-year.
Finance Minister Sri Mulyani Indrawati said strong household consumption suggests high optimism on the economy. Recovery of domestic tourism industry should also support the economy this year.
Despite corrections in portfolio investments, FDI (except those entering startups) and domestic investments might continue to be strong.
Export-import data in the first two months of 2023 is scheduled to release in the coming hours. Correction might continues due to downfall of commodities.***