Global Bourses Plummet: Total Hot Money Flows Out of Emerging Market Reaches US$1.6 Billion

Saturday, 06/02/2010 00:00 WIB

Irvin Avriano A.

for Bisnis Indonesia

Global Bourses Plummet: Total Hot Money Flows Out of Emerging Market Reaches US$1.6 Billion

JAKARTA: The Composite Stock Index (IHSG) yesterday fell 2.86% to 2,518.98 on negative sentiments created by plummeting global bourses on worries that the economic recession will continue in the wake of surging European bond default risk.

Bloomberg reported worries about the default risk and data on unemployment in the US lowered the emerging market stock indices to their four-month low.

The Morgan Stanley Capital Index (MSCI) for emerging market bourses dropped 2.6% to 902.59, the lowest since October 2.

In Asia, Indonesia Stock Exchange was the second worst-performing index after the Hang Seng index, which fell 3.33%. Only 13 stocks rallied on BEI amid corrections in 178 blue-chip stocks.

Head of Researct at PT Paramitra Alfa Se?kuritas Pardomuan Sihombing said foreign investors this weekend were panicked, leading them to book net-buy, followed by sales made by local investors.

"Negative sentiments come from the European bourses, triggered especially by the default risks in Greece, Spain, and Portugal. This is another round of negative sentiment after tighter lending by the US and China," he told Bisnis yesterday.

The default risks, he continued, could make it more difficult for the US and England, the major creditors to the three European countries, to recover.

The negative signal is exacerbated by data on the US unemployment, which soared to the record high since World War II. The US government revises up unemployment rate to 8.1 millions from 7.2 millions.

Bisnis recorded after the data revision, the US payroll bill from December 2007 to December 2009 fell 5.9%, higher than 5.2% during 1948-1949 or World War II.

"The market worries too much when it starts focusing on negative news, but the condition can change all of a sudden. The data are quite good, but the market now focuses on systemic risks," told an analyst at IG Markets Cameron Peacock as quoted by Bloomberg.

Hot money

Global EPFR reported such a condition would trigger the withdrawal of hot money from emerging market bourses, which yesterday reached US$1.6 billion or around IDR15.2 trillion.

In Indonesia, foreign investors sold IDR1.78 trillion's worth of shares of the total daily transaction of IDR4.36 trillion. They recorded a net-buy of IDR996.202 billion or the year high.

In the meantime, the rupiah exchange rate to the US dollar fell 0.7% to IDR9,410. Bloomberg recorded the amount of capital inflow to BEI slumped 47.7% or US$57.1 million. On the previous day, the amount of capital outflow reached US$105.9 million.

"The net-buy has been happening since January. Global investors dispose their assets in Asia to maintain liquidity and anticipate harsh times," said Pardomuan.

Yesterday, the Shanghai index fell by 1.87%, the Hang Seng index by 3.33%, the Kospi index by 3.05%, and the Nikkei-225 index by 2.89%. The Asia Pacific MSCI index also dropped 2.6% to 114.56.

The Dow Jones index last night climbed 0.04% to 10,005.81 after being corrected a day before. The FTSE 100 index in England at 21:00 WIB last night dropped 1.75% to 3,625.19, while Italy's FTSE MIB index fell 1.07% to 21,179.75.

Mining stocks

Head of Online Division at PT AM Capital Suryadi Candra Kasih added publicly listed mining shares were significantly corrected on declining global crude oil price.

"Mining and plantation shares are correlated to global crude oil price, which is in a downward trend."

Global crude oil price yesterday fell 0.01% (US$0.01 per barrel) to US$73.13 or dropped 7.85% from US$79.36 per barrel earlier this year.

The mining stock index yesterday fell 4.13%, while the infrastructure sector index dropped by 3%. On the other hand, the plantation, consumer, financial, multifarious industry, and chemical sector indices were down by an average of 2.5%.

The property sector was the one having the lowest correction of 1.65%. The LQ-45 and BISNIS-27 indices slid by 3.29% and 3.11%, respectively, to 505.18 and 237.69.

"The phenomenon is a delayed correction, which has befallen to China and Hong Kong. Technically, this is a swing amid the bullish trend, a minor correction amid the long-term positive growth trend."

In the global bond market, the yield of 10-year US T-bond jumped one basis point on lower unemployment and higher downsizing last night. (Bisnis/Wiw/Irvin Avriano A/Ags)