IMF's aid expected to raise sentiment

JAKARTA (JP): The announcement of the US$23 billion financial rescue package from the International Monetary Fund (IMF) is expected to boost market sentiment at the Jakarta Stock Exchange (JSX) this week.

Analysts estimate that investors will use the momentum to buy blue chip shares, which they describe as being "very very" cheap.

"Stormy days are gone, it's now time for investors to enter the market for certain cheap quality stocks," one analyst with a joint-venture securities firm said Saturday.

Vice president of Mashill Jaya securities Tjandra Kartika said IMF's huge aid package was expected to help stabilize the region's volatile financial market.

"I think the IMF aid package for Indonesia will help stability in other Southeast Asian markets," he said.

He said if confidence in the Indonesian economy could be restored, trust in other economies of the region would also improve.

"I think that's the reason why the package for Indonesia is much bigger than that given to Thailand," he said. "But it does not mean that Indonesia's economy is worse than Thailand's."

Regional currencies, such as the Malaysian ringgit, the Philippine peso and the Indonesian rupiah, have been under pressure due to the domino affect of the devaluation of the Thai baht in early July.

However, Tjandra said many investors would still be cautious and would wait for details of the government's reform measures.

"The overall atmosphere is that the market will need to digest the news first and spend some time before making any decision on what to do," he said.

Head of W.I. Carr Securities Indonesia Pablo Zuanic said the financial package's implications on Indonesia's economy would not be short-term.

"I think the announcement of the financial package will have long-term implications for Indonesia which in turn will bolster investment in the country," he told The Jakarta Post over the weekend.

However, most analysts said that listed companies, especially banking stocks, were expected to be the hardest hit by the currency crisis, which would erode their corporate earnings this year.

Tjandra predicted that banking sectors would face a difficult time as reflected in the downtrend of profit earning in the third quarter this year.

"The corporate result in the third quarter will be worse this year," he said, adding that economic growth would slow down in the near future.

Other analysts said the government's announcement of the closure of 16 commercial banks would scare away investors from buying banking stocks.

Economists and analysts in Jakarta predicted that economic growth would slow down in the next few years as the government would need time to adjust to the major economic restructuring in face of the currency crisis.

Sofyan Wanandi, chairman of the Gemala Group, for example, predicted that economic growth would be about 5 percent to 6 percent this year and 4 percent to 5 percent next year.

"That's the bullish side. Foreign investment banks have even predicted that the growth rate will be as low as 1.5 percent to 2 percent next year," he said.

Tjandra expected that Bank Indonesia (the central bank) would cut interest rates of its short-term SBI papers to as low as 15 percent to revitalize the sluggish economy.

"Financial reform should be followed by providing liquidity to the market, unless economic growth stagnates," he said.

The JSX composite index dropped by 10.021 points to 500.418 last week.

Daily average turnover was 476.60 million shares compared to 353 million shares changing hands the previous week.

Daily average value rose to Rp 541.21 billion compared to Rp 338.98 billion the previous week.

Big capitalized stocks closed mixed last week with telecommunications firm PT Telkom slipping by Rp 25 to close at Rp 3,350, satellite operator Indosat by Rp 575 to Rp 8,125, while cigarette maker Gudang Garam rose Rp 1,475 to Rp 10,200 and its competitor Sampoerna by Rp 475 to Rp 6,275. Bank Internasional Indonesia rose by Rp 25 to Rp 775, Bank Negara Indonesia was unchanged at Rp 775 and Bank Dagang Nasional Indonesia lost Rp 25 to close at Rp 500. (aly)