By Stefanno Sulaiman and Gayatri Suroyo
JAKARTA (Reuters) -Indonesia’s financial services regulator has allowed listed companies to buy back their stocks without shareholders’ approval, while the central bank conducted “bold” currency intervention to calm markets, officials said on Wednesday.
The moves came after the main stock index fell as much as 7.1% on Tuesday, pressured by concerns over the government’s policy, fiscal position and growth prospects.
The index recovered by around 1% as of 0430 GMT Wednesday after the announcement. The rupiah, however, extended losses, falling by as much as 0.7%, despite Bank Indonesia’s intervention.
The currency was hit by spillover impact from Tuesday’s drop in the stock market as well as global factors including U.S. trade policy, expectations around the Federal Reserve’s meeting this week and tensions in the Middle East, BI’s director of monetary and securities asset management Fitra Jusdiman told Reuters.
“BI has and will continue anticipatory, mitigatory responses to ensure stability in the rupiah exchange rate, maintain FX supply-demand, including by intervening in a bold and measured way,” he said.
The financial regulator’s new buyback rules are effective for six months and are intended to shore up market confidence, said Inarno Djajadi, chief regulator for the capital market at the Indonesia Financial Services Authority.
“We hope to give a positive signal that companies have good fundamentals, to provide market confidence to investors as well as give flexibility to listed companies to conduct corporate actions to reduce share volatility,” Inarno told a press conference.
Satria Sambijantoro, head of research at Bahana Securities, said cash-rich companies whose share prices are undervalued may opt to use the opportunity to reduce public holdings.
In past episodes of stock market plunges, state companies were among those which conducted buybacks to prevent further falls.
State-controlled banks last month announced plans for buybacks.
Iman Rachman, chief executive of the Indonesia Stock Exchange, said Tuesday’s index drop has not affected the pipeline for initial public offerings.
BI is due to hold a press conference on its monetary policy review later in the day. Most economists polled by Reuters expect BI to keep rates unchanged to prioritise rupiah stability, although a significant minority expected a 25-bp rate cut.
“Moves in local financial markets … create a headache for the central bank,” said Capital Economic’s chief emerging markets analyst William Jackson.
“While low inflation and slower economic growth should set the stage for another interest rate cut… concerns about the currency … may prompt it to act more cautiously and leave rates unchanged.”
CONCERNS OVER POLICY, POLITICS
Analysts said the market selloff was triggered by several factors.
Those include an increase in the state’s role in Southeast Asia’s largest economy under President Prabowo Subianto, management of state companies, the set up of new sovereign wealth fund Danantara, rising risk of fiscal deterioration and speculation over the resignation of respected Finance Minister Sri Mulyani Indrawati, which she has since denied.
Of particular concern to investors was a government plan to have the military play a wider role in state institutions, which could allow armed forces personnel to serve in more civilian positions, said head of Indonesia research at Macquarie Capital Ari Jahja.
Parliament is set to pass contentious revisions to the military law on Thursday.
Appearing alongside financial regulators at Wednesday’s press conference, lawmaker Budi Djiwandono said no active military personnel would be placed in state-owned companies. Djiwandono is deputy head of the parliamentary committee overseeing the deliberation of the military law revisions and Prabowo’s nephew.
Foreign investors, who make up around 40% of Indonesia’s stock market participants, recorded net sales of around 2.49 trillion rupiah ($150.68 million) on Tuesday.
($1 = 16,525.0000 rupiah)
(Reporting by Gayatri Suroyo, Stefanno Sulaiman, Fransiska Nangoy; Editing by John Mair, Martin Petty and Shri Navaratnam)
