'Floods could tip stock market down'

Berni K. Moestafa, The Jakarta Post, Jakarta

Selling pressure might drag the local stock market down in lackluster trading this week. And many traders might skip work as heavy flooding continues to paralyze the capital, analysts said over the weekend.

Investment analysts at Mandiri Sekuritas, Zulfiqar said that even without the flooding, the market's more than one-month rally was nearing its end.

"The index is already overboard," he said, explaining the stock market had gained too much over the past few weeks, and that a downward correction was inevitable.

Since January the local stock market index has gained 18 percent, making it one of the world's best performing markets.

Foreign investors raiding undervalued stocks in Indonesia, Thailand and the Philippines have spurred sharp gains in these markets in what is known as the January effect.

The Jakarta Stock Exchange (JSX) Composite index rose to 454.28 on Friday from 452.46 a week before.

Zulfiqar expected selling pressure from local investors would outgrow the weakening inflow of foreign capital this week.

He added that the likelihood of quite trading this week would only make it easier to break the market's upwards trend.

"I think that many (market participants) would prefer to stay home rather than go out and face the floods," he said.

Heavy rains have inundated large areas of Jakarta since last week, forcing many commuters to stay home.

It may get worse though. Flood victims in the Manggarai area are demanding authorities open a floodgate, which, at their expense, has been protecting Jakarta's business districts in Jl. Sudirman and Jl. Thamrin.

But as yet, news of the floods had made no significant impact on the trading of particular shares, said Fajar Hidayat, an analyst with PT Trimegah Securities.

"Such news should have affected shares of consumer products, but I don't see any big declines so far," he said.

He said heavy flooding might have disrupted the distribution channels of retail companies or the output of consumer products.

Fajar also concurred with Zulfiqar on rising selling pressure capping the index rise. He predicted the index would fall, but not below 435. Zulfiqar said the index could fall to as low as 430.

A currency dealer said the rupiah also faced quiet trading this week, as the floods was keeping participants off the market.

But unlike the JSX index, he said the rupiah would likely remain resilient against the U.S. dollar.

"Speculators and short term (dollar) buyers might not want to buy the dollar now," the dealer at a foreign bank said.

He attributed the slack interest on the sudden rise of the overnight rates in the interbank market.

"I haven't seen rates as high as this in the last three years," the dealer said, adding rates stood at some 50 percent.

He could not specify the reason for the surge, but estimated that it might be linked to the flooding, which had spurred demand for liquidity.

He said with rates that high, the cost of buying rupiah in order to purchase the U.S. dollar became needlessly expensive.

This, he said, thwarted speculators from pressurizing the rupiah, while keeping corporate dollar buyers on hold.

According to him, the rupiah is likely to maintain its trading range of between 10,300 to 10,400 this week. It closed last Friday at 10,325 from 10.455 a week earlier.