Concern over Brazil drags market down

Concern over Brazil drags market down

JAKARTA (JP): The country's plagued financial market dropped
again for the second consecutive day on Thursday with the rupiah
losing 1 percent and shares prices falling 2.5 percent.

Currency dealers said the rupiah succumbed to hit an intraday
low of 8,800 against the U.S. dollar as it took another blow from
the domino effect of the Brazilian real's devaluation.

The rupiah, nevertheless, managed to claw back to 8,675 at the
end of the day's trading. It was 1 percent down from Wednesday's
close of 8,600.

Dealers said the rupiah was dragged down in an unexpected
attack by offshore speculators and by fears that Brazil's
effective devaluation of the real could hit emerging markets,
including Indonesia's.

"The main cause for the rupiah's weak standing was probably
Brazil," said a chief dealer with a joint venture bank in
Jakarta.

Brazil's central bank chief, Gustavo Franco, resigned
Wednesday and his successor, Francisco Lopes, announced a
widening of the trading band for the country's currency, the
real, which set off alarms about a global financial crisis.

"But on top of that the holiday mood ahead of the Muslim Idul
Fitri festival and the country's increasing social and political
risks put more pressure on the rupiah," a financial analyst with
a local medium-size bank said.

He predicted that the local unit would continue to be under
siege due to the increasing country risk.

Although it was under pressure, dealers said, Bank Indonesia
was not seen in the market to prevent the rupiah from declining
further despite its governor's warnings the previous day.

Bank Indonesia Governor Sjahril Sabirin pledged on Wednesday
that the government would step into the market to help the
currency recapture the 8,000 level by converting its dollar
holdings into rupiah.

"Unlike on the previous days, state banks which most of the
time acted on behalf of the central bank or the government in the
market were not seen selling dollars today," another dealer said.

Following the downward trend of the rupiah, stock prices on
the Jakarta Stock Exchange (JSX) fell 2.5 percent with the
benchmark JSX Composite Index closing 10.55 points lower at
408.55, off its intraday low at 399.86.

Trading turnover totaled 294.02 million shares valued at Rp
289.49 billion.

Decliners outnumbered advancers by 62 to 18 with 85 stocks
remaining unchanged.

Among the companies hardest hit by the weak rupiah was
automotive giant PT Astra International, which lost Rp 125 to
close at Rp 850 on 13.5 million shares traded.

Market leader, state-owned telecommunications firm PT Telkom,
which holds 17 percent of market capitalization, gained Rp 50 to
close at Rp 3,375 on 10.8 million shares. This prevented the
index from falling further.

Stockbrokers attributed the persistent fall of local stock
prices to the general fall in the regional equity markets due to
the Brazilian fiasco and massive selling pressure by most foreign
fund managers ahead of the Idul Fitri holiday next week.

"Heavy selling pressures on most blue chip stocks ahead of the
holiday have given no room for stock prices to rise," Suhendra,
an institutional sales broker with Trimegah Securindolestari
said.

Most foreign brokerage firms such as Credit Lyonnais, Indosuez
WICarr, SG Securities and local giants Danareksa Sekuritas and
Bahana Securities were on the selling side on Thursday.

"People tend to pull out of the market ahead of the holiday,"
he said.

Head of research of BNI Securities Adrian Rusmana said fears
that the country's social and political situation would
deteriorate after the holiday are scaring investors away.

"The country's unresolved political and social crises remain
the biggest problem for foreign investors," he said. (aly)