JSX gets wrong signals

JSX gets wrong signals

The plunge of the Jakarta Stock Exchange (JSX) by another 23.5
points or 4.1 percent yesterday after a dive of 21 points to a
five-week low last week was blamed by most analysts mainly on the
wrong market signals set off by several inconsistencies in
government policy over the last few weeks. The 171-point fall in
Wall Street last Friday and the tension between China and Taiwan
also contributed to the bearish sentiment. But the wrong market
signals seemed to have been the primary factor that has prompted
many foreign fund managers, who usually account for over 75
percent of the market's trading volume, to reduce their portfolio
of Indonesian stocks.

Obviously the new automobile industry policy, which was
announced late last month, was repeatedly cited as the most
flagrant policy inconsistency. The way the supposedly well-
intended national automobile program was devised was seen by most
analysts and car assemblers as discriminative. PT Astra
International, the only car company listed on the JSX,
predictably tumbled by more than 12 percent and since the
country's largest automobile assembler is one of the largest
companies listed on the JSX, the impact of the Astra fall on the
JSX index was quite significant.

Nonetheless, one may still wonder why many other big cap
stocks not related to the car industry also came under strong
pressure. The answer, we think, lies in the perception that the
implication of an abrupt policy change in a sector is much
broader than it seems to be.

Since the car industry policy was announced only a few days
after the government reneged on its pronounced import tariff
policy by granting a 25 percent tariff protection to PT Chandra
Asri's olefin center, analysts and investors became jittery. They
apparently detected an unfavorable trend as the two companies
that are the direct beneficiaries of the policy inconsistencies
happen to be politically-well connected. The trend caused them to
wonder "what is then the guarantee that similarly abrupt policy
changes will not take place in other sectors of the economy?"

Unfortunately, too, the policy inconsistencies are occurring
amid the raging controversy over the required reelection of the
JSX directors and commissioners. The Capital Market Supervisory
Agency (Bapepam) recently issued a ruling requiring the
reelection of the JSX directors and commissioners even though the
present management was elected by the JSX shareholders only last
March. The controversy arose because the reelection is mandated
only to fulfill the new procedures for the election of the JSX
management, as stipulated by the new Capital Market Law.

The ruling is causing some uncertainty as it signifies that
the highest authority in the JSX does not lie in its
shareholders, as it always does in a limited liability company,
but rests with Bapepam, a government agency. Moreover, the reason
cited for the reelection of the JSX management is seen by most
analysts as unreasonable and even politically-motivated as it is
related mostly to procedures rather than to the qualifications
and the performance of the directors. Analysts wonder why the
present management is not allowed to conclude its three-year
tenure before reelection is conducted according to the new
procedures as stipulated in the law. We don't see any relation
between the requirement to reelect a new management next month
and the efforts to improve the competence and efficiency of the
JSX.

The bearish mood in the JSX over the last 10 days is once
again bringing home a strong message that any policy consistency
will be punished by the market irrespective of whatever reasons
are cited by the government to justify such abrupt policy
changes.