Indonesian shares reverse gains as c.bank raises worries on recovery

Indonesian shares reversed their course to trade lower on Tuesday, after the country's central bank raised concerns about the pace of its economic recovery, while most other emerging Asian stocks gained in line with a broader rally.

The Jakarta benchmark, which rose as much as 1.3% earlier, was down 0.7% at 0721 GMT. It had added nearly 4% in the last four sessions following an expansion of a COVID-19 relief budget last week.

Bank Indonesia's (BI) governor told lawmakers that the contraction in Southeast Asia's largest economy in 2020 was greater than its expectations and the pace of its economic recovery was slower than anticipated.

Denting sentiment further, retail sales in Indonesia dropped 19.2% year-on-year in December, steeper than a 16.3% fall a month earlier, a central bank survey showed.

Analysts at DBS Group, in a note, said that the near-term strain on public books is unavoidable owing to the COVID-19 pandemic.

Indonesia is tackling the worst outbreak in the region, with its case load accelerating in recent months.

Higher deficits will push borrowings in 2020-2022, likely taking the public debt level to the upper end of 38%-40% of GDP compared to 30% in end-2019, the analysts added.

Most other emerging Asian stocks edged higher as volumes remained thin ahead of the Lunar New Year holidays, while regional currencies strengthened against a weaker dollar.

The Thai baht, Malaysian ringgit and the Singapore dollar edged up about 0.2% each.

Among equities, the Thai benchmark gained for a fourth consecutive day, while India was on track for a seven-day rally.

Investors also looked to regional central banks to gauge their response to seasonal demand for cash ahead of holidays.

Vietnam's central bank has injected some $1.6 billion in cash into the banking system over the past five trading days , joining China and Indonesia which pumped liquidity into their financial markets last week.

Analysts said COVID-19 disruptions have made it harder for regional central banks to predict cash demand.

"The cash injection is typically higher going into the Lunar New Year... but I think this is a bit special because of the pandemic, which is why we're seeing more volatility in the short-term interest rates", said Sim Moh Siong, FX strategist at Bank of Singapore.

"Central banks have a bit more difficulty in estimating cash demand because, unlike in the previous years, people cannot travel, visit each other and go out as much".

Elsewhere, a Reuters poll showed Malaysia's economic slump is expected to have deepened in the fourth quarter due to sustained restrictions on movement and business to curb the spread of COVID-19.