The collapse of Turkish Lira and Argentina peso last month caused contagion effect to Asian markets, with Indonesia Rupiah heading to its lowest level in over two decades.

The currency dropped over 2% over the last five trading days to 15,013, breaking down a psychological support level of 15,000 against the greenback. This is the weakest level seen since the 1998 Asian financial crisis.

Indonesia is ASEAN’s largest economy and thus its currency rout could have far-reaching impact to its neighbours, including Malaysia and Singapore. Malaysian ringgit and Singapore dollar both fell over 1% against USD over the last five trading days.  Indonesian central bank has raised interest rate four times since May trying to support the domestic currency, but the effort yielded little results as trade deficit and reliance on oil imports rendered the country vulnerable against headwind of strong dollar as well as rising crude oil prices.

In Singapore, several companies that has significant exposure to the Indonesian market caught investors’ attention. Among them, many are palm oil plantation companies, namely Bumitama Agr, First Resources, Indofood Agr, Golden Agr. Automotive wholesaler company Jardine C&C also has significant exposure to Indonesia.

An unusual rebound in China and HK stocks in the late trading hours yesterday caught the attention of many market participants. Without headline news, market suspect the ‘National Team’ stepped in to support the Shanghai Composite to hold it above 2,700 points - a level that tied closely with market confidence.

Besides that, foreign capital inflow backed by passive ETFs may also be a key driver behind as MSCI has doubled China’s weighting to 5% in the MSCI Emerging Markets Index. The changes take effect from the start of this months, and is estimated to bring in around S$ 60 billion yuan of passive inflow. The strong bounce seen yesterday may be linked to some passive inflow via these ETFs.

In fact, the foreign capital continued to buy on dips as the market came to its lowest level in three years as bearish sentiment and tightened liquidity crushed China stocks. The global ETF net flow data, as compounded by Bloomberg, suggested that some US$767 million worth of ETF money flew into China market over the last week, making it the third largest net inflow market behind the US and Eurozone, which attracted US$7,772 and US$1,371 million respectively.

US Dollar Index – Sep

By Margaret Yang in Singapore

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