Bearish mood prevails in stock market, say analysts

A'an Suryana, The Jakarta Post, Jakarta

Volatility on Wall Street, coupled with rising political tension at home in the run up to the upcoming People's Consultative Assembly (MPR) annual session, will keep stock investors here in a bearish mood, an analyst says.

Chief economist at state-owned Bank Mandiri Martin Panggabean said Saturday that volatility in the U.S. stock market was expected to prevail for sometime due to the lack of confidence in U.S. companies following a spate of accounting scams.

He told The Jakarta Post that this would send negative sentiment through the local stock market, putting investors on the sidelines.

He predicted the Jakarta Stock Exchange composite index would decline to 430 next week from around 441 last week.

After a strong performance in the first five months of this year, making the Jakarta market one of the best performers in the region during the period, it has been in a declining trend since the middle of June.

Last week, bluechip counters were falling on negative development in the U.S. market. Shares in state-owned telecommunications firm PT Telkom were down Rp 525 to Rp 3,325, while international telecommunications operator PT Indosat were down Rp 350 to Rp 8,950.

Sigma Research Institute analyst Jasso Winarto, however, offered a rather optimistic picture for the week, saying that Wall Street had hit the bottom last week and would eventually strengthen again.

He said that this would in turn provide positive sentiment in the regional markets as well as in the Jakarta market.

Elsewhere, Martin said that in addition to external factors, internal factors would also put pressure on the local stock market.

He said the Aug. 1 to Aug. 10 MPR Annual Session, the jailing of former president Soeharto's son Hutomo Mandala Putra for conspiring to murder a Supreme Court judge, and the planned trial of Laskar Jihad chairman Djafar Umar Thalib for instigating violence in Ambon.

"These are sensitive events which will make investors adopt a wait and see attitude," he said.

Meanwhile, currency analyst Wawan Wiradjaya from DBS Vickers said that the Indonesian currency would also remain weak next week.

"The cause is mainly from external factors. The strengthening of the U.S. dollar has caused the value of regional currencies, including the rupiah, to drop," he said.

The rupiah ended lower Friday at Rp 9,150 from Rp 9,000 previously as local companies bought the dollar to repay maturing offshore debts, dealers said.

Local companies are burdened by around US$70 billion of offshore debts, which they raised before the 1997 financial crisis. Although some of them have managed to roll over the maturity of the debts, several companies with ongoing businesses are servicing their offshore debts.

The repayment of offshore debts occasionally weighs on the rupiah.

Dealers said that the fall in the stock market also weighed on the rupiah as expectations that foreign investors would convert their rupiah into dollars after their stock sales.

Dealers expect the rupiah to test Rp 9,200 Monday as they expect the sell-off in Asian stocks to continue.

The arrival of the International Monetary Fund's review team this week, however, will be a positive factor for the local currency.