Currency uncertainties will shade JSX's trading

JAKARTA (JP): Uncertainties over the direction of the rupiah and other regional currencies will continue to shade trading activities on the local stock market this week, analysts and dealers said.

Securities analysts said that investors did not see any attractive incentives for them to enter the market given the current volatility of the rupiah, after the Thai baht and the Philippine peso were under attack in the last few weeks.

The rupiah has been under severe attack for the past few weeks following the devaluation of the Thai baht and the Philippine peso early last month. Its value has declined by 20 percent this year, much of which took place in the past two weeks.

On Thursday alone, the rupiah lost 5 percent against the American greenback following the central bank's move to abandon the currency's intervention band. On Friday, the currency suffered another 3 percent drop to close at Rp 2,880.

Analysts said that they are still confused about the direction of the currency in short-term but believed that it would stabilize in the next few weeks.

"Faced with such volatility, nobody dares to enter the market," one analyst said.

Tom Inglis, head of research at ING Barings Securities, said that uncertainties in the market would remain and rule over the fundamentals.

"I do not see any immediate rebound in the market and it might recover in the next three to four months," he said.

"It's just a blue week for most investors ... and nobody can do anything," he said.

American experts also have the same view, saying that the free-floating rupiah should rebound on the strength of economic fundamentals in coming weeks, but volatility will still deter foreign investors until then.

"We may enter when we feel the likelihood of a stable exchange rate will increase," said Luis Luis, emerging market debt analyst at Scudder Stevens & Clark. "That will depend on getting more stability in Malaysia and Thailand."

Longer-term rupiah stabilization will most likely arrive via equity investment, a more liquid market in the country, Luis said. "As equity investors return to pick up bargains, we'll see the currency improve," he said.

Invesco Asset Management is much more skeptical.

It is bullish on Latin America and Eastern Europe but will tread lightly in Indonesia and other Southeast Asian countries amid regional currency uncertainty.

"Our strategy has been to overweight Latin America and Eastern Europe. We have increased our aggressive stance as the months progressed," Francesco Bertoni, head of the fund manager's emerging markets desk, told Reuters.

Pentasena Arthasentosa's Edwin Syahruzad said that macroeconomic fundamentals were no longer the case.

"It has turned into a microeconomic problem. How strong are the fundamentals of the company during the current volatile market?" he asked.

Christina Lim, of Harita Securities, said that most investors had to track sideways during this sluggish market and watch the direction of the currency in the coming weeks.

"We advise our clients to sell and watch closely on certain cheap big capitalized stocks in the coming weeks," she contended.

"Investors are rushing to stay away as soon as possible and sell at whatever price due to rupiah currency fall," she said.

The JSX Composite index fell by 8.54 percent, or 57.73 points, to close at 617.70 last week from 675.43 in the previous week.

Average daily turnover rose 22 percent to 299 million shares last week compared to 249 million shares in the previous week.

However, the average daily value declined 9 percent to Rp 474 billion (US$175.55 million) last week, compared to Rp 520.2 billion in the previous week.

Most blue chip stocks declined last week, with Bank Negara Indonesia falling by Rp 200 to Rp 1,200; HM Sampoerna by Rp 575 to Rp 7,675; PT Telkom by 225 to Rp 3,450; and the satellite company Indosat by Rp 75 to Rp 7,075 while Gudang Garam rose by Rp 675 to Rp 9,300. (aly)