Last week, the Indonesian rupiah collapsed to its weakest level against the green back in 20 years. One US dollar was equivalent to 14,825 rupiah, representing a 9% drop since the start of the year, making the rupiah one of the worst performing currencies in the region. Worse still, analysts believe that if credit spreads rise, the rupiah could plunge even further, and possibly surpass the 15,000 mark.
Market participants in Singapore reacted quickly to the news, selling down stocks that would be affected by the sudden collapse of the Indonesian rupiah. Here are the three counters that could be affected should the currency crisis continue.
Golden Agri-Resources Ltd (SGX: E5H)
This palm oil plantation company is one of the few Straits Times Index (SGX: ^STI) constituent stocks that will be affected by the rupiah collapse. The company owns or manages 172 oil palm estates with a total area of more than 500 thousand hectares in Indonesia. While a lower rupiah could be earnings-accretive for the group, it exposes it to currency translation risks as it reports its earnings in US dollars.
In the first half of the year, Golden Agri’s revenue declined due to lower palm oil prices. It also suffered a US$17.1 million foreign exchange loss, which resulted in a US$24.3 million loss over the period. Since September 4, the stock has nose-dived 16.6% from S$0.30 per share to S$0.25 per share.
Jardine Cycle & Carriage Ltd (SGX: C07)
This investment holding company has a large exposure to Indonesia through its 50.1% stake in Astra International. Astra operates a diverse range of business in Indonesia and has a 46.2% stake in Tunas Ridean, a automotive dealer group that operates and is listed in Indonesia.
In 2017, Astra International contributed US$640.7 million or 81% of Jardine Cycle & Carriage’s total underlying profit. Nevertheless, Jardine Cycle & Carriage performed well in the first half of 2018, as revenue climbed 10%, with Astra’s contribution to underlying profit increasing 12%. From September 4, shares of Jardine Cycle & Carriage dipped 2.5% to its current price of S$31.31.
Lippo Malls Indonesia Retail Trust (SGX: D5IU)
Perhaps one of the worst-hit real estate investment trusts (REITs) in Singapore is this Indonesian-based retail trust.
In the first half of 2018, the trust, which has a portfolio of 30 properties in Indonesia, saw its net property income and distribution per unit decline 6.2% and 29.6% respectively. This was partly a due to the weakened Rupiah against the Singapore dollar. For instance, if the financial results were reported in Rupiah in the first half of 2018, net property income would have instead increased by 2.7%. Units of Lippo Malls Indonesia Retail Trust have plunged 32.5% since the start of the year.
The Foolish bottom line
Foreign currency fluctuations can greatly impact the profitability of companies and REITs. As investors, we need to be aware of these risks and ensure that our portfolio is sufficiently diversified such that any currency fluctuations will not have too great of an impact on our overall portfolio returns.
Meanwhile, there are 28 surprising and important things we think every Singaporean investor should know--and we've laid them all out in The Motley Fool Singapore's new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge--simply click here now to claim your copy.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Jeremy Chia doesn’t own shares in any companies mentioned.