Gloomy outlook for rupiah, stocks, experts say
Dadan Wijaksana, Jakarta
The stock index and rupiah are expected to remain under pressure in the coming weeks, clouded by negative sentiment stemming from the prospects of global interest rate increases.
An analyst said on Sunday that with the signs of a U.S. benchmark rate hike already apparent, stock markets worldwide would be the first to bear the brunt, even more so in the case of a nation like Indonesia with lingering domestic economic problems and political uncertainty in the run-up to the July 5 presidential election.
"The upward movement in global capital markets will become stalled and we are likely to see a downward trend. Indonesia will likely be hit even harder because of election concerns," Dandossi Matram told The Jakarta Post.
Indonesia will hold its presidential election on July 5, with a possible run-off between the top two candidates on Sept. 20.
Dandossi said the imminent rise in U.S. interest rates would make it less attractive to invest in the stock market as compared to other investment instruments, including bonds.
"It's time to quit (the stock market) as it is no longer attractive."
The Jakarta Composite Index closed last week at 692.72 points, around 1.6 percent lower than the previous week's closing, on the back of continued subdued market sentiment and worries over the weakening of the local currency against the dollar.
Last week's average daily trading volume was 788.68 million shares worth Rp 501.2 billion (US$53.3 million) compared to 1.02 billion shares worth Rp 605.1 billion the previous week.
Top executives at the U.S. Federal Reserve are scheduled to convene by the end of the month to discuss interest rates, with analysts widely predicting a hike of between 25 to 50 basis points.
A stock dealer at a Jakarta-based bank also attributed the negative sentiment to the absence of positive leads in the market.
"With no good news in sight, the market will remain nervous and under pressure," she told the Post.
The two agreed that what may drive the market was short-term speculative trading.
"Practically, it's the bargain-hunting speculators that will drive the market, as has been the case in recent days," Dandossi said.
Meanwhile, the rupiah is likely also to weaken against the U.S. dollar but within a limited range following the introduction of measures by the central bank to stop the local unit's slide.
Last week, the rupiah ended slightly weaker at 9,405 per dollar as compared to 9,380 a week earlier.
Having lost 4.5 percent of its value during May, the local unit has so far depreciated by some 11 percent this year -- higher than the around 7 percent gains it booked throughout 2003.
The central bank has raised the bank reserve requirement in a bid to absorb excess liquidity and stabilize the local currency. Bank Indonesia has said that the excess liquidity in the banking sector had been used to speculate against the local unit.