Fri, 03 Dec 2004

Jakarta stocks tip 1,000 before falling back

Rendi A. Witular, The Jakarta Post/Jakarta

Driven by optimism of higher corporate earnings and a flow of fresh capital from the bond market, the Jakarta stock market soared on Thursday to another record high, tipping the 1,000 level before inching down on profit taking.

The Jakarta Composite Index ended higher by 11.499 points at 997.698, off an intraday high of 1,003.503 with a trading volume of 4.50 billion shares worth Rp 2.84 trillion (US$315 million).

Stock analyst Arwani Pranadjaja of Mandiri Securities said improvement in the investment ratings of several bluechip companies along with a report that the government might lower corporate tax had fueled optimism on the trading floor for better corporate earnings next year.

"There are a lot of positive sentiments coming out for the corporate sector. The sentiments have outweighed technical fears that share prices in the market are already overbought," said Arwani.

Standard & Poor's (S&P) has raised local currency ratings for a number of publicly listed companies, such as state-owned telecommunication company PT Telkom and its rival PT Indosat. S&P raised the ratings for Telkom and Indosat by two notches to BB, two levels below the investment grade.

After the announcement, Telkom shares ended higher by Rp 100 to Rp 5,200 and Indosat unchanged at Rp 5,700.

Movement in Telkom caused a great swing in the market, given the fact that it is the largest counter on the bourse with about 15 percent of the market's capitalization.

The record high for the bourse will not only improve its chances of becoming the best performing stock market in the region, but will also increase confidence in the country in the eyes of international rating agencies and investors.

Although it is not a new issue for local investors, a statement by coordinating minister for the economy Aburizal Bakrie to foreign-based media in Laos that the government will lower corporate tax next year from 30 percent to 25 percent to boost investment has fueled positive sentiment for foreign investors.

Foreign investors, who account for more than 50 percent of the flow of funds into the bourse, project better prospects for listed companies in anticipation of a stronger domestic purchasing power next year.

Arwani also said the surge in the index was also attributable to the maturing of some Rp 1.8 trillion of government treasury bonds this week, which had caused excess liquidity on the part of investors.

"The liquidity has been absorbed mainly by the stock market. That is why the trading is so bullish," he said.

Heriyanto Irawan, head for the newly set up Deutsche Verdhana Indonesia Securities said the continuous improvements in the political and macro environments were paving the way for a leveraged equities recovery.

"Operating conditions have improved for both the public and private sector... Factors hindering investment have started to improve and there is a more favorable banking sector to fund investments," he said.