JSX rise fragile as buying sentiment fades: Analysts

JAKARTA (JP): After climbing to a five-month high, the stock market index may eventually drop on weaker buying sentiments, as most investors had already placed their bets in the lead up to the People's Consultative Assembly special session, analysts said.

They said that at this stage, fewer investors would enter the market and warned that selling pressure would grow.

"There is still upside potential, but the market will be vulnerable," said stock analyst Adrian Rusmana of BNI Securities.

He said the stock market index rose only 3 percent last week, despite a surge in transaction value of over 300 percent.

In that period, the Jakarta Stock Exchange (JSX) Composite Index closed trading at 446.28, up 3 points from the previous week's closing at 432.87.

At the same time, transaction value jumped to Rp 769.7 billion (about US$67.81 million) as against Rp 184.3 billion the week before.

Adrian said the wide gap between the rise of the index and that of transaction value, signaled a thin margin of investors selling and buying.

"While much money flowed in, almost the same amount flowed out, the net sum of money left represents the index rise," he said.

Considering this, he went on, the JSX index may not be able to sustain its rise. "In the past two weeks, the index rise hasn't been robust at all," he said.

He added the impact of Argentina's financial woes may also have had a spill over effect on the local stock market.

Argentina is close to default on its debts of some US$130 billion, a move that could drag down the rupiah and with it the JSX index.

Adrian said up to now confidence over a positive outcome of the impending Assembly special session had been fueling the index gains.

When the Assembly convenes on August 1, they will almost certainly impeach President Abdurrahman Wahid.

In a preemptive move against the special session, Abdurrahman threatened to declare a state of emergency next Friday and dissolve the House.

However, his threats rang hollow, as both the police and the military have refused to support such a move.

On the back of a positive political outlook, Adrian predicted potential for more index gains existed up to the level of 455.

"But if the index drops to below the level of 433 or 434, it will trigger panic selling," he added.

A stock dealer at a local brokerage said the market was fairly confident that the President would not carry out plans to declare a state of emergency.

According to him, the market has just enough steam to extend the index upward trend into next week's trading.

The dealer concurred with Adrian's warning that the JSX rise was fragile. "Compared to other markets, ours has become relatively expensive," he said.

But he said that speculative trading would likely continue to push the index upwards, with resistance looming at 450.

He said investors thinking of buying now, should trade in short terms only.

"Most players remain fixed on second liners shares ... blue chips have become a bit too expensive," he explained.

Meanwhile, a source at the JSX said that a preliminary investigation on the unusual gains during trading in mid-June had been concluded.

However, he declined to reveal the investigation's results.

Suspicions had arisen that gains during the trading period in mid-June had been manipulated through market intervention.

According to the source, the results have been submitted to the Capital Market Supervisory Agency (Bapepam).

Bapepam chairman Herwidayatmo said he had not seen JSX's report yet, but promised to follow up the matter.

On the currency market, political uncertainty maintained its dominance in trading last week.

The market has largely ignored the presence of a team from the International Monetary Funds (IMF), which last week reached a basic agreement with the government to resume the Fund's lending.

As in the stock market, currency players hoped to profit from speculative trading ahead of the special session. But as they entered early, the market had become too long in dollars, analysts said.

Elsewhere, Bank Indonesia senior deputy governor Anwar Nasution said the rupiah would remain stable despite the special session.

"The Assembly's special session is unlikely to cause volatility that would harm the rupiah," Anwar was quoted as saying by Antara in Medan.

Developments in Argentina shed little concern over the rupiah, as some players preferred to unwind their long dollar positions before the rupiah gained on political optimism.

Also, at 11,300 the dollar had been too high for corporate demand to enter and break the rupiah's tight trading band.

The rupiah closed in last week's trading at 11,340, unchanged from its previous closing the week before. (bkm)