Index up as rupiah makes gains
Rendi A. Witular, The Jakarta Post, Jakarta
The Jakarta Composite Index rose sharply again on Monday to approach the highest level in the nation's history, but an analyst warned that the rapid rise might prompt speculators to engage in profit-taking, thus pushing the index back down.
After President Megawati Soekarnoputri made a few brief remarks to mark the opening of trading, the Index moved full- throttle ahead and ended at 725.472, up 3 percent, or 20.974 points from 704.498 on Friday, the first day of this year's trading.
The highest level ever recorded by the nation's bourse was 742.983 on July 9, 1997, one month before the financial crisis hit the region starting in Thailand.
Shares in state-owned telecommunications company PT Telekomunikasi Indonesia (Telkom) once again led the Index higher after the company's president, Kristiono, said that its sales might surge by up to 20 percent this year.
Telkom shares ended up 7.1 percent at Rp 7,550, a record since its listing debut in 1995.
Telkom is the largest counter on the Jakarta Stock Exchange accounting for 17 percent of the bourse, meaning a shift of one point in Telkom shares can move the Index by about 17 percent.
Cigarette producer Gudang Garam, the second largest counter, also rose by Rp 250 to Rp 13,950.
Ferry Latuhihin, a stock analyst with state-owned brokerage house PT Danareksa Securities said that the surge was fueled by investor "euphoria" over the country's improved macroeconomic condition and by the optimism that was pervading stock markets worldwide.
Tokyo stocks opened this year's trading with a gain of 1.4 percent, ending at a two-month high of 10,825.17. Meanwhile, Hongkong stocks rose by 1.2 percent to 12,949.8
Ferry also said that the low equity valuation of the Index had encouraged foreign investors to put their money into the local bourse as they considered shares to still be cheap.
"Our shares are still undervalued. Even with the Index currently standing at 725, our price earning ratio (PER) is still 12 percent, lower than Thailand, Singapore or Malaysia. Thus, there is still room for the Index to climb," said Ferry
The higher the PER, the more investors are paying, and therefore the more earnings growth they are expecting.
However, Ferry warned that the rapid surge in the Index would prompt speculators to seek quick profits and leave the bourse, leaving other investors to bear the losses.
"The recent rapid surge is frightening. I would urge investors to make wise judgments based on corporate profits and sales, don't just follow the herd," he said, adding that the Index was projected to be stand at between 715 and 725 by the end of this week.
If profit-taking occurred, the Index would remain firm at the 700 mark, he said.
Thanks to capital inflows from foreign investors into the stock market, the Indonesian rupiah ended the day at a 10-week high at Rp 8,385 against the U.S. dollar. The rupiah ended at Rp 8,453 on Friday.
An analyst with a state-owned bank said that aside from benefiting from the surge in the Index, the rupiah was also gaining from the weakness of the dollar against other global currencies.
The dollar fell to a new low against the euro on Monday. The euro touched a record high of $1.2672 before falling to around $1.2657 at 06.20 GMT (1:20 p.m. Jakarta time).
The analyst said that if the decline in the dollar continued, the rupiah was expected to trade at between Rp 8,300 and 8,400 for the rest of the week.