Bullish stock market to help drive rupiah up

Dadan Wijaksana, The Jakarta Post, Jakarta

An absence of fresh news is expected to limit the movement of the rupiah this week, although bullish sentiment in the stock market will provide more leeway to the local currency to slightly strengthen against the dollar, an analyst has said.

The rupiah closed higher last week at Rp 8,740 against the U.S. dollar, compared to the previous week's closing of Rp 8,870.

For this week, a currency analyst with an international bank predicted the rupiah would test the Rp 8,700 level on continued healthy sentiment in the stock market, the composite index of which experienced a 6 percent increase last week.

"In line with the movement in the stock market, the rupiah will be stable with a strong upward tendency this week," he told The Jakarta Post over the weekend.

Relatively stable macroeconomics indicators will also spur positive sentiment in the market, but dollar demands from corporations will likely offset the rupiah's movement, he added.

Many of the country's debt-ridden companies, which are saddled with foreign debts totaling US$60 billion, will need dollars to repay their maturing debts as well as finance imports, which will eventually cast a shadow on the rupiah's performance.

The companies borrowed the money before the 1997-1998 Asian financial crisis, which crippled the country's economic activities, in turn prompting the companies to seek debt rescheduling.

However, as most of the companies only managed to secure a three-year rollover, they had to start making payments for maturing debts last year.

Nevertheless, that will only slightly impede the upward trend of the rupiah as the market is focusing on progress in bank divestment programs and privatization.

"If there is progress, it would be good for the rupiah," the analyst said.

The government is currently preparing to relaunch the canceled sale of a 71 percent stake in Bank Niaga, with 20 percent first being sold directly on the stock market, followed by the remaining 51 percent stake being offered to strategic investors.

The government also plans to sell a majority stake in Bank Danamon next month and in Bank Lippo by the end of the year together with the sale of a 30 percent stake in Bank Mandiri.

In the stock market, positive sentiment will keep the market players active, following the 6 percent jump in the composite index last week, according to a dealer with a local brokerage.

He was quick to add, however, that profit-taking would start to set in, impeding the index's further movement.

"I think the market will remain active this week, with players turning to second-liners. However, profit-taking should dominate trading in the first days of trading," he told the Post.

The Jakarta Stock Exchange composite index rose 30.976 points over the week to 545, from 514.02 points, mostly triggered by expectation of the upgrading of the country's sovereign rating following an agreement to reschedule some $1.3 billion in debts to private creditors grouped under the London Club.

Daily volume last week averaged 987 billion shares valued at Rp 703 billion ($80.6 million) compared to the previous week's 481.34 million shares valued at Rp 386.44 billion rupiah.

State telecommunications firm PT Telkom rose Rp 325 over the week to Rp 4,275 and Indosat closed Rp 100 higher over the week at Rp 11,450.

Cigarette producer Sampoerna gained Rp 125 over the week to Rp 4,475 while rival Gudang Garam surged Rp 850 over the week to close at Rp 11,550.