'January effect' blunted by fears of U.S. rate hike

JAKARTA (JP): Fund managers are expected to start the year's buying program, intensifying their activities at the Jakarta Stock Exchange (JSX) and raising the composite index this week, according to stock analysts.

However, they fear the bullish sentiments, dubbed the "January effect", could be undermined to some extent by nervousness over the possible hike in United States interest rates.

"We will see a bullish but volatile market next week," an analyst with a joint-venture securities house said over the weekend.

Buying sentiments usually increase in January -- a phenomenon called the January effect.

However, a selling-spree hit the JSX and other stock markets in the region in the middle of last week following sharp overnight drops on Wall Street in fear of the possibility that the U.S. monetary authority would raise interest rates to prevent the economy from overheating.

But, investors here downplayed the impact of the possible increase in US interest rates, noting that the JSX quickly rebounded late last week.

"Strong domestic fundamentals are more influential to the market than external factors such as U.S. interest rates," an analyst said.

Ferry Yosiahartoyo from Vickers Ballas Tamara said the country's strong economic fundamentals could be seen in lower inflation and interest rates.

He said the January effect would prevail in the JSX in the weeks to come.

"The January effect will prevail and the composite index will rise to the 1,000 level," he said.

Consumer demand in the country had recovered while prices of goods and service remained stable, Ferry said.

He said companies could now sell their products in the form of goods and services at relatively higher prices, thus creating higher revenues.

"Higher revenues mean higher value for the companies," Ferry said.

In addition, Ferry said, many companies have emerged stronger having overcome problems caused by foreign exchange loss last year.

"The value of the rupiah is currently stable with an increasing trend," he said.

With all the positive factors Ferry was optimistic the JSX Composite Index would be on the increase starting this week, assuming there were no disruptions in the country's political and economic climate.

Other analysts said communal clashes between Muslims and Christians in Ambon have had no significant impact on the market as investors were more interested in economic factors.

On the Y2K issue, Ferry said the market was pleased that no computer troubles had occurred in the capital market as well as other big institutions.

Ferry said starting this week the JSX composite index would correct itself having been freed from the pressure of Y2K fears.

"Y2K is a past burden, now we know that it is gone," he said.

However he said foreign investors would probably need an extra one or two weeks to convince themselves that the JSX was Y2K compliant.

Another analyst said technology-related stocks would be among the best-sellers this week.

The JSX Composite Index increased 1.7 percent to close the three-day trading week at 688.52 points last week, from 676.91 the previous week.

Its daily transaction values stood at Rp 1.24 trillion on an average daily turnover of 979 million shares last week.

Last week's top gainers were PT Astra Graphia, rising 132.73 percent, PT Bank Bali (100 percent) and PT Fajar Surya Wisesa (84.85 percent).

The week's big losers were PT Lippo Land Development, down 35.71 percent, PT Bank Danamon (22.22 percent) and PT Bumi Modern (18.18 percent).

The top brokerage firms by transaction value were PT Danareksa Sekuritas with Rp 382.5 billion, PT Bomar Securities (Rp 289.9 billion) and PT Jardine Fleming Nusantara (Rp 283.5 billion).

Due to the Ramadhan holiday, the JSX closed last Friday and will reopen on Tuesday.

The rupiah decreased 1.1 percent to close the week at 7,167 against the U.S. dollar, compared to its 7,087 close the previous week. (udi)