The JSX plunges<\/p>\n
The 7 percent fall of the Jakarta Stock Exchange (JSX)
\nComposite Index on Monday to a 17-month low, though widely
\npredicted after the bomb blast at the JSX building on Wednesday
\nafternoon, will have a far-reaching impact on the pace of the
\nnascent economic recovery.<\/p>\n
As the country's financial and capital markets still sorely
\nlack depth and sophistication, the stock exchange, besides
\nserving as a window on Indonesia's best companies, is one of the
\nmain benchmarks for asset-price assessments. Its role as a main
\nsource of equity capital for investments becomes even more vital
\nnow as most major banks are still too fragile to resume
\nsignificant corporate lending.<\/p>\n
The first to be hit by the steep share-price drop will be the
\nplanned initial public offerings of state banks and companies
\nwhich are badly needed to raise funds to plug the state budget
\ndeficit and make the exchange more attractive through new
\nlistings of blue chip companies.<\/p>\n
As foreign investors have always been the main players in the
\nexchange and portfolio investment is still the only foreign
\ncapital flow feasible now until there is significant remedy in
\nthe nation's multidimensional crisis, their massive unloading of
\nshares at the JSX on Monday and Tuesday will likely leave the
\nmarket depressed for some time.<\/p>\n
The problem any exchange faces after panic selling is that the
\nmarket takes some time and requires a host of very positive
\nfactors before it can recoup its losses. There will not likely be
\na repeat of Monday's plummet. The JSX did rebound slightly on
\nTuesday, up more than 3 percent to put up the index at around
\n425. But this technical rebound could be only temporary in the
\nabsence of new positive factors. But even languishing at the new
\nlevel means that the market capitalization is now as low as it
\nwas during the height of the economic crisis in early 1999. The
\nmarket value of the 280 companies listed at the JSX is now still
\nless than 26 percent of the precrisis level in June, 1997.<\/p>\n
Most analysts now consider the stock prices very cheap, but
\nsince the political and security risks are seen as too high, the
\nJSX will most likely not reenter the computer screens of foreign
\nand domestic investors. Market sentiment is so negative now,
\nespecially as Indonesia is under strong pressure from the United
\nNations, the World Bank and the United States to restore order in
\nthe western part of Timor island, that investors will simply
\nignore the significance of the expected economic growth of 3.5
\npercent to 4 percent this year and 5 percent next year.<\/p>\n
Chief economics minister Rizal Ramli, who attended the
\nreopening of trading at the JSX on Monday after two days of
\nclosure apparently to lend a psychological boon to the market,
\ntried to reassure investors, saying that the fall would only be
\ntemporary as the market was still in shock. But Minister of
\nFinance Prijadi Praptosuhardjo and Minister of Industry and Trade
\nLuhut B. Panjaitan, who accompanied Rizal during the visit,
\nwitnessed for themselves how verbal reassurances from the chief
\neconomics minister did nothing to prevent panic selling.<\/p>\n
What the market expects are concrete measures to maintain
\nsecurity and order, policy consistency and strong law
\nenforcement, without which reasonable risk calculation -- which
\nis what business is all about -- would be rather impossible.<\/p>\n
True, many of the multiple woes that have been dogging the
\ncountry are beyond the jurisdiction of Rizal's economic team to
\nresolve. But fast, strong, consistent measures by the economic
\nteam in debt, banking and corporate restructuring and on other
\nmajor items in the reform agenda, as stipulated in the
\ngovernment's letter of intent to the International Monetary Fund,
\nwould provide very positive factors to improve market sentiment
\nand minimize the economic uncertainties of doing business in the
\ncountry.<\/p>\n
The economy cannot afford to wait long for a strong rebound in
\nthe JSX because the exchange's performance will affect the
\noutcome of the asset sales by IBRA and the privatization of
\nnationalized banks and state companies, which are crucial in
\nplugging the state budget deficit.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-jsx-plunges-1447899208",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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