JSX stock prices may drop on fear of U.S. rate hike

JSX stock prices may drop on fear of U.S. rate hike

JAKARTA (JP): Fears of a possible U.S. interest rate hike and
a slow recovery of investors' confidence in Indonesia's political
stability are likely to push share prices here further down this
week, analysts said.

Stock prices on the Jakarta Stock Exchange (JSX), which have
been continuously stagnant following the July 27 riot, need more
time to rebound as foreign investors are likely to remain
sidelined.

A senior manager with a local securities company told The
Jakarta Post over the weekend that expectation of a U.S. interest
rate hike has returned to the market following the upward
revision in growth rate of the second-quarter U.S. Gross Domestic
Product last week.

The U.S. Commerce Department released data last week that the
country's economy expanded at a 4.8 percent annual rate in the
second quarter, rather than the 4.2 percent previously estimated.

Second-quarter growth figures, new home sales, consumer
spending and factory orders all point to a surging economy,
prompting fears among investors that the Federal Reserve, the
U.S. central bank, will intervene to hike interest rates in order
to curb inflation.

"So it seems to me that investors will be very cautious and
that stock prices may further go down this week," the executive
said.

Meanwhile, a senior dealer with a London-based brokerage noted
that on the domestic side, investors are still alert on political
issues, although the situation is now more controllable.

The dealer, who requested anonymity, told the Post that the
issue was not what was going on in the political scene right now
but the very slow recovery of investors' confidence in the
nation's political stability after the July 27 riots.

"Investors base their portfolio allocations on various
factors. Most of them had never been worried about political
stability in Indonesia until the July 27 incident," the dealer
said.

"Once they changed their valuation grade on political risk,
they would not easily upgrade the revision," he added.

He argued that Indonesia's macroeconomy is too strong to blame
for the continuing bearish mood on the stock market. There is
also nothing in the microeconomy to explain the sluggish market,
because a number of big companies have reported stronger results
of their operations in the first half of this year.

"As far as the domestic issue is concerned, investors should
have been more cautious on political risk," he said.

The dealer didn't deny that the country's political situation
is currently much better. He contended, however, that it was not
enough to immediately boost a major recovery of investors'
confidence.

He said that in line with the slowing recovery process, the
market would not see big deals from foreign investors like those
before the incident.

"I would say that the market may further go down or be
stagnant in quiet trading next week," he added.

An executive of a Japanese-based securities company viewed
that in addition to interest rates and political issues,
investors may also reduce their activities to anticipate the
forthcoming initial public offering of the state-owned Bank
Negara Indonesia 1946.

Stagnant

Stock prices on the JSX declined by 0.2 percent last week on
lack of foreign participation, coupled with regional weakness.

The benchmark JSX Composite Index edged down 1.6 points to
547.61 points. Total trading value reached Rp 1.1 trillion
(US$446 million) with 550 million shares changing hands.

Foreign buy transactions amounted to Rp 615 billion against
sell transactions of Rp 525 billion.

Among the most active stocks last week were Lippo Life and
Lippo Securities, which were buoyed by internal restructuring in
the Lippo Group.

Lippo Life booked transactions of 15.5 million shares worth Rp
31 billion, while Lippo Securities recorded total transactions of
45 million valued at Rp 67 billion.

Lippo Life and Lippo Securities' share prices respectively
declined by Rp 272 to Rp 2,000 and by Rp 150 to Rp 1,425.

Meanwhile, Lippo Bank increased by Rp 50 to close at Rp 3,600.

The largest stock, Telkom, which announced higher first-half
results, closed down by Rp 50 to Rp 3,300. Indosat also decreased
by Rp 50 to Rp 7,400.

Cigarette manufacturer HM Sampoerna shed Rp 625 to Rp 22,500,
while its competitor Gudang Garam increased by Rp 475 to Rp
8,600.

The 10 most active stocks in value, other than Lippo
Securities and Lippo Life, were Putra Surya Perkasa (with a
trading value of Rp 91 billion), Berlian Laju Tanker (Rp 80
billion), Karwell Indonesia (Rp 49 billion), Bimantara Citra (Rp
48 billion), Gudang Garam (Rp 46 billion), Duta Anggada (Rp 45
billion), Polysindo (Rp 36 billion) and Surya Dumai (Rp 35
billion). (alo)