Foreign capital flows to JSX set to continue

Berni K. Moestafa, The Jakarta Post, Jakarta

Foreign investors may continue to make use of their inroads into the local stock market this week by keeping the index up and rising, although local investors looked set to unwind their gains, analysts said.

According to estimates by Sekuritas Ahmad Subagja, an investment analyst at Niaga, the stock market looks set to book more gains -- albeit at a pace weaker than in the previous weeks.

Foreign capital inflow might recede, he said, while selling pressure from local investors could increase.

"There is still a good chance for blue chips shares," Ahmad told The Jakarta Post Saturday.

The Jakarta Stock Exchange (JSX) Composite Index breached the significant barrier of 450, soaring to 452.46 on Friday from just 426.41 a week before.

Analysts attributed the JSX's steady gains to the so-called "January effect," wherein investors build up their portfolio anew at the beginning of the new year.

Ahmad said that stock markets in Thailand and the Philippines had reported the same influx of foreign capital.

Indonesia, Thailand and the Philippines, he said, "have long been left out by foreign investors, now they return over apparent renewed confidence in them," he explained.

What attracted foreigners most were the cheap stock prices of some of the regions' companies, now still undervalued, he said.

Foreigners "are here to stay for at least another few weeks," said analyst Edy S. Widjoyo of Ciptadana Sekuritas.

According to Edy, investors would likely wait until trading at the JSX is volatile enough before they pull out.

An active market permits stock prices to rise quickly, allowing early birds to book hefty profits -- but often at the expense of late investors, or "those local investors who have been shying away from the market, and are lured back by the JSX gains," Edy said.

He saw a meaty five percent rise in the JSX index this week, provided local investors stood their ground and not take a profit yet.

Among the firms being eyed by investors, he said, were state telecommunications companies PT Telkom Indonesia, and PT Indosat.

Their shares have remained strong, despite news of protesting Telkom workers threatening to break a strategic deal between the two.

The deal requires Telkom transfer its fixed-line assets in Central Java to Indosat in exchange for a 35 percent share in the country's biggest cellular phone operator, PT Telkomsel.

As the deal demands the consent of Telkom employees in that region, chances are good that both companies will scrap the deal.

Telkom might have to pay Telkomsel's 35 percent in cash, which Edy said was worth US$375 million.

But Indosat might prefer a cash payment, as it did with companies that had more investment flexibility, he said. "This news is already reflected in their stock prices," he added.

In the currency market, Bank Buana Indonesia director Pardi Kendy predicted no major changes for the rupiah this week.

He said that the local unit had been staying at a trading range of between 10,300 to 10,500 against the U.S. dollar over the past few weeks.

The rupiah has shown itself as still weak but relatively stable, despite Bank Indonesia steadily easing its benchmark rates, which add pressure to the unit.

But now there were signs of a rise in corporate dollar demand that could push the rupiah beyond the 10,500 mark, Pardi warned.

"This should signal to Bank Indonesia to be more careful in lowering its interest rates," he added.