Interest rate woes to cast another shadow on JSX

JAKARTA (JP): The uncertainty surrounding regional currencies and the rising interest rates in Indonesia will continue to cast a shadow over the local stock market, analysts said.

Securities analysts predict that investors will be monitoring fluctuations in the regional currency following the last three weeks of turbulence.

John Rachmat, a senior analyst from Schroders Indonesia, told The Jakarta Post over the weekend: "I think concern over the regional currency will remain and investors would be very cautious to watch its direction.

"It seems that the market will remain in a downward trend this week," he said.

Southeast Asian currencies, including the rupiah, have been under severe attack since early July following the devaluation of the Thai baht and the Philippine peso.

Analysts said that the Thai government had yet to improve its economy and next week's talks with the International Monetary Fund were expected to improve market sensitivity. Talks will center on the financial package to bail out the country's economy.

"The result of the talks between the Thai government and IMF will surely lead the market sentiment," one analyst said.

The central bank, Bank Indonesia, has increased the interest rates of its Bank Indonesia certificate (SBIs) by several percentage points in the last three weeks to shore up the rupiah.

The increase in the interest rate has dried up the liquidity in the banking system, causing a sharp increase in the overnight interbank rates. This incited a rise in deposit rates and caused a drop in trading on the Jakarta Stock Exchange.

The increase in interest rates for SBIs, the central bank's main instrument to tighten liquidity, had since been lowered by half a percentage point to 9.5 percent.

But the fall in share prices has continued despite the slight drop in SBI rates.

Minister of Finance Mar'ie Muha,mad assured the public last week that the central bank's move to rise the interest rates would be temporary. He said the policy would be eased gradually depending on the market condition.

Other analysts attributed the share price drop not only to the interest rate fear but also to the change in the margin trading ruling.

He said that the ruling change had partly discouraged the trading activities because investors needed to meet more requirements to use the margin facilities from their brokers.

Tjandra Kartika, vice president of Mashil Jaya Securities, said that the dormant market was also caused by many investors cashing in their stocks to generate funds to buy rights to other companies.

Investors have to spend at least Rp 6.74 trillion to buy rights over the next four weeks, Tjandra said.

"The investors have to sell some the shares they hold now to generate funds for rights payments."

Besides that, most foreign fund managers were still on their summer holiday during August and September.

"It is a yearly cycle for foreign fund managers to pull back from the market for summer holidays," Tjandra said.

The introduction of margin finance regulations by the Capital Market Supervisory Agency (Bapepam) on the JSX, since August 1 this year, also cause a disruption, he said.

The JSX composite index fell by 6.4 percent last week or 46.336 points to 675.436 from 721.77.

DBS Securities said that the index was likely to touch the level of 650 this week.

The average daily turnover declined by 35 percent to 249.1 million shares changing hand last week in comparison to 379.1 million shares in the previous week.

Average daily value also fell by 18 percent to Rp 520.2 billion (US$200.84 million) from the previous week's Rp 614.8 billion.

Most big-capitalized stocks lost ground last week with Telkom falling by Rp 125 to Rp 3,850, Indosat by Rp 625 to Rp 7,425, Cigarette maker HM Sampoerna by Rp 725 to Rp 8,325 and its competitor Gudang Garam by Rp 1,025 to Rp 8,850, Bank Negara Indonesia by Rp 50 to Rp 1,425 and Bank Internasional Indonesia by Rp 275 to Rp 1,575. (aly)