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.