Foreign analyst upbeat about local stock trading

Foreign analyst upbeat about local stock trading

JAKARTA (JP): Gavin Graham, a senior Hong Kong-based
investment officer of Citibank N.A. of the United States
expressed an upbeat outlook yesterday about the Indonesian
capital market despite the persistent drops in share prices.

"I am optimistic that the buying trend will improve again
despite the recent increase in the domestic interest rates," he
told The Jakarta Post during the break of a seminar on the
outlook for Asian markets towards the APEC (Asia Pacific Economic
Cooperation) era.

Graham, the main speaker at the seminar, acknowledged that the
persistent falls in share prices on the Indonesian markets are
partly caused by the rise in U.S. interest rates, which has also
caused an increase in the domestic rates.

"The rise in the U.S. interest rates has also affected other
Asian markets. But I am sure the crisis will end," he said.

He said price drops in Asian markets was not caused by the
decline in the economic fundamentals but rather due to the
psychological impact of the rise in the U.S. interest rates.

The latest rise in the U.S. Federal Reserve's interest rates
in May has caused a slight rise in the deposit rates in Indonesia
to between 10 and 10.5 percent per annum from 9.5 percent and 10
percent in May. But the deposit rates are still 1.5 percentage
points lower than those offered in the period between last
October and January despite the increase.

Graham said Indonesian stock exchanges and other Asian markets
will still give investors higher profits than those offered by
bank deposits even though there would be another rise in interest
rates.

Reduction

Foreign fund managers have significantly reduced their
portfolio investments in Asian markets to benefit the rise in the
U.S. interest rates. The foreigners' pullout has also
significantly affected the Indonesian stock exchanges where
foreigners are still the dominant factor in trading activities.

"Many local investors made a cut-loss trading due to selling
pressure from the foreign investors. This further pushed down
stock prices," he said.

He, however, believed that the sluggish market condition would
improve again as foreign investors have mostly gained more
confidence that the favorable improvement of the U.S. economy
would prevent the Federal Reserve from introducing another
unpopular monetary approach.

"The Jakarta Stock Exchange (JSX) Composite Index will reach
500 points again before the end of this year and see another
increase to 550 points early next year and to 600 points in the
first half of next year," he said.

He based his optimistic view on the improvement of the
country's macroeconomic conditions and corporate earnings in the
first half of this year.

Graham said that the introduction of a capital market law and
the improvement of trading infrastructures next year would
provide important incentives in revitalizing the stock trading
activities in the country.

The JSX index, which hit its historical high level of 681.94
in April 1990, suffered a sharp decline to as low as 300 points
in the following two years. The market improved again in early
1993 and in January this year, when the index managed to reach
612.88 points.

The index had since continued declining to below 451 points
last week even though the level of deposit rates offered by local
banks are still lower than those offered in January. (hen)