Analysts expect downward correction in Jakarta market

Analysts expect downward correction in Jakarta market

Rendi A. Witular, The Jakarta Post, Jakarta

After hitting record highs on five consecutive trading days,
the Jakarta stock exchange is likely to head downward this week
after the week-long Idul Fitri holiday, as share prices in the
market are already considered overbought.

The Jakarta Composite Index ended at a new record of 934.03 on
Nov. 12, up by about 4 percent from 893.63 on the previous week's
closing.

Stock analyst Adrian Rusmana of BNI Securities said the bourse
was currently overheated with a weekly yield of 4.15 percent in
U.S. dollar terms, making it the world's fourth most lucrative
bourse.

"Technically, the index is already in 'extremely overbought'
territory. This leaves the way open for the bourse to head for
a correction," said Adrian in a note to investors on this week's
outlook for the Jakarta market.

BNI Securities forecast that the Index will hover in a range
of between 930 and 863 this week.

Adrian explained that, fundamentally speaking, shares in
Jakarta were relatively expensive compared with other bourses in
Southeast Asia, with the Jakarta Index's price earnings ratio
(PER) currently standing at 15.2 times, higher than those of
Singapore (13.9 times), Thailand (10.9) and Malaysia (15.0).

The Index's higher PER was not come in tune with the sovereign
ratings given by international rating agencies, which rank
Indonesia lower than Singapore, Malaysia and Thailand.

The lower ranking means that investment conditions in
Indonesia, both as regards portfolio and direct investment, are
poorer than in those three countries.

"The surge in the Index over the last couple of weeks was
primarily driven by the 'emotional' response of market players to
the World Bank's decision to revise the country's economic growth
upwards," said Adrian.

"This, however, is too weak to prop up the Index as the World
Bank also revised up growth forecasts for other countries in the
region, and their stock markets turned out to be less affected by
the reports," he said.

The World Bank said the country's gross domestic product would
grow by 4.9 percent this year, up from its initial projection of
4.5 percent. It also expected the Indonesian economy to grow by
5.4 percent next year, up from its initial forecast of 5.0
percent.

Elsewhere, a stock analyst with Mandiri Securities said the
surge in the Index was unlikely to continue this week unless
there was intervention from the government ahead of its plan to
sell its minority stakes in a number of banks next month via the
stock market.

"The plan is expected to drive up sentiment for investors,
especially as regards banking shares," said the analyst.

The stock market usually goes into rally mode ahead of
government asset divestments, with some analysts suggesting that
such rallies are partly driven by state pension funds and
insurance companies being ordered to pump funds into the market
before withdrawing after the sales have been completed.

The finance ministry's Asset Management Company (PPA) has
confirmed that it will sell 20 percent of the government's stake
in Permata Bank in December to help plug the state budget
deficit.

The government is also planning other sales in the same month,
including possibly its minority stakes in Bank Internasional
Indonesia (20.78 percent), Bank Central Asia (5.04 percent), and
Bank Niaga (21.51 percent). The government earlier this month
sold 10 percent of its shares in Bank Danamon for Rp 1.74
trillion.