Index expected to rebound this week

Dadan Wijaksana, The Jakarta Post, Jakarta

As the overall market sentiment remains positive, the Jakarta Composite Index is expected to return to its upward trend this week, after the Telkom fiasco disrupted the trend last week, a stock analyst said.

Adrian Rusmana, head of researcher at BNI Securities, said in its weekly stock assessment that the index had the potential to reach 520 points this week, rebounding from last week's trading which saw the index decline to 510.48 points.

The index broke the 520 mark in mid-week -- thanks to the overall positive sentiment in the market boosted by stronger rupiah and continued cuts in Bank Indonesia's benchmark interest rate -- but faltered later following Telkom's audit report problems with a U.S.-based financial watchdog.

The company had its 2002 financial report rejected by the U.S. Securities and Exchange Commission (SEC) -- leading to a temporary suspension of the company's stock on the New York Stock Exchange -- because the audit was conducted by a firm that is not accredited by the SEC.

However, upon hearing the company's pledges that it would comply with the ruling, the SEC allowed Telkom to resume trading on Friday.

This, coupled with continued good sentiment, will likely push the index higher.

"The correction should not be responded to with panic by investors. This could be a positive indicator for the index to take a breath before extending its rally, which began in March," Adrian said.

"It has the potential to reach 520 points."

The index closed last week at 510.48, with the daily average value standing at Rp 588.5 billion (US$71.7 million).

Active buying will not only be limited to blue-chip shares but will also affect second-liners, including banking stocks, which have caught the attention of investors ahead of the government's plans to offer a 15 percent stake in Bank Mandiri on the stock market.

Meanwhile in the currency market, the rupiah is expected to strengthen this week within a narrow range, rebounding from last week's decline caused by profit-taking moves.

"Heavy profit-taking slowed down the rupiah's movement last week. But since expectations for continued capital inflow remain high, I think the rupiah will bounce back this week, maybe to a level slightly below 8,200," a currency dealer from a local bank said on Sunday.

The local unit ended last week's trading weaker at 8,225 per dollar, compared to 8,180 the week before.

Amid the absence of fresh news that could shake the current positive sentiment, investors would still expect more capital inflow to buy local assets being offered under the privatization and divestment programs. This would increase the chance for the rupiah to strengthen, the dealer said.

Since early this year, the local unit has appreciated close to 10 percent against the faltering greenback, making it the best currency performer in the region.