Investors set to stay away as uncertainty remains

JAKARTA (JP): After significant drops, share prices on the Jakarta Stock Exchange (JSX) will likely stay flat this week as most investors will take no positions due to lingering instability in the domestic political and security conditions.

Equity analysts predict the Jakarta Stock Exchange (JSX), which reached bottom levels after major setbacks in the last few weeks, would show no major change in featureless trading.

The outbreak of violence over former president Soeharto last Friday, involving people unhappy with the slow process of legal action against him, will give a stronger reason for investors to take "no positions", according to them.

"Investors will just be highly cautious and refrain from buying next week, even though the market has reached the bottom," an analyst at a local securities company said over the weekend.

Student protesters, joined by youths and surrounding residents, vandalized and set fire to military vehicles on Friday last week on a street near the home of Soeharto, the country's former strongman.

The unrest was preceded by clashes between police and the protesting students who urged the government to promptly try the former president for corruption during his terms in office.

"Investors just do not buy in situations like this. The buying spree late last week was not at all a sign of a market rebound," another analyst said.

A strong buying in late trading on Friday would could not be sustained as such seemingly positive sentiments were, in fact, the impact of short-selling transactions, according to an analyst.

Some investors took a short-selling approach last Friday on a number of stocks which they thought would be quickest to lose ground due to the unrest.

Short-selling is an act of making a sell order in the early session and a buy order in the later session by an investor in the hopes of booking gains if the share price goes down during the day.

Head of research at BNI Securities Adrian Rusmana said another factor complicating the bearish market was the lingering fear of a further hike in United States interest rates.

"The hike in the U.S. interest rates mean a higher interest expense for many local companies who have debts in dollars," he said.

The U.S. government, as widely speculated, will likely increase its currency interest rate by between 25 basis-points and 50 basis-points in mid-June to mitigate the country's overheating economy.

Adrian also added that the higher dollar interest rate would depress the value of the other currencies around the world, including the rupiah.

An analyst at a state securities house said, however, "Whatever happens, if the (Composite) Index is below 500 points, the local shares must be attractive," he said.

"Foreign investors here still see JSX shares as cheap, as long as the (Composite) Index is below 500 points," he said.

"Their strategy is to gradually accumulate share holdings as not to significantly move the Index up if it is below 500 points," he said.

He admitted that there was a considerable fund flow out of the equity market for dollar deposits, but added that investors still wanted to diversify, and one way was to invest in cheap stocks.

He said security concerns were not as market sensitive as last time when the country did not have a legitimate government, but pointed out that the current conditions should not get any worse.

"It is not any more a problem of legitimacy, only mismanagement within the government.

"But still, foreign investors would reduce the 500-point threshold to 450 points for JSX shares to be considered cheap if security concerns are prolonged," he said.

The JSX Composite Index decreased 5.4 percent last week to close at 482.07 points, compared to 509.40 points the previous week.

The daily average transaction value decreased, to Rp 361.95 billion last week, compared to Rp 522.73 billion the previous week.

The daily average turnover, however, increased to 453.54 million shares from 394 million shares the previous week.

Currency dealers said the rupiah might face more pressure this week if protests to promptly bring Soeharto to trial continued.

"We want to see things settled and have the rupiah trade at not less than 8,500 against the dollar next week," he said over the weekend.

The rupiah closed lower last week, at Rp 8,495 against the U.S. dollar, compared to Rp 8,338 the previous week due to the domestic political and security instability. (udi)