JSX to continue upward movement: Analysts

JAKARTA (JP): Equity analysts said the Jakarta Stock Exchange (JSX) Composite Index would stay above the 500-point level this week as more investors -- shrugging off concerns over political instability sparked by feuds among elite politicians -- would take a bullish view of the market.

They said the detention of Bank Indonesia Governor Sjahril Sabirin by the Attorney General's Office, perceived by many as having political motives, only temporarily weighed on the JSX mid-last week as investors reentered the market for relatively cheap shares across the board.

"Investors have turned their eyes to the economic stories. They see cheap share prices, yet good performances," one analyst said.

Budi Ruseno of Bhakti Investama agreed that the Composite Index was bolstered last week as investors were happy with good news released during last week by a number of companies following their annual shareholders' meeting.

He said further announcements would support the market's rebound this week as many of the firms were expected to have positive news to announce.

He forecast the Composite Index would range between 505 points and 530 points this week.

The JSX Composite Index gained 4 percent last week to close at 503.14 points, compared to 484.02 points the previous week.

The daily average transaction value increased to Rp 543.08 billion last week, compared to Rp 459.36 billion the previous week.

The daily average turnover also increased to 614.37 million shares from 347.84 million shares the previous week.

"The market will be sensitive about the positive news, particularly from large corporations next week," Budi said last Friday.

Such announcements are a reflection of corporate activities which are seen be investors as a clear message that the country's economy was running fine, despite the still ailing banking sector.

Numerous corporations hold their annual shareholders' meetings throughout June, with some announcing dividend payments, performance as well as plans and other commitments.

An analyst from a local securities firm said it was fair to say that the market would down play the domestic political issues next week as things have seemed to settled down under President Abdurrahman Wahid's hand.

"President Abdurrahman seems to have control over the political battle out there. The detention of Sjahril Sabirin could mean an end to the standoff between them, with Abdurrahman coming out the winner," he said.

Budi said issues concerning a hike in domestic interest rates would not weigh on the equity market as investors believed the magnitude of the hike would not be so significant as to burden the government in servicing its bank recapitalization bonds.

"We are talking about an insignificant hike in interest rates, somewhere much lower than 25 basis points. It will give positive effects to the equity market rather than weigh on it," he said.

He said if the rate hike was significant it would make the equity market correct itself as some of the investors might cash in some of their stock holdings and migrate to higher bank deposits.

With an insignificant increase in the interest rate, the rupiah is expected to be much stronger, thus inducing more market confidence.

Sharing a similar view with Budi, another analyst from a state securities house said the JSX Composite Index was more sensitive to developments in U.S. dollar interest rates.

The same thing applies to the regional bourses in Asia.

"The market has yet to be more assured that the U.S. Federal Reserve will really stop raising its interest rates in its late June meeting over the country's overheating economy," he said.

Unlike the stock market, the rupiah has not fared well this past week and many dealers expect that the Indonesian currency will remain weak this week due to the lingering domestic political instability and weak regional currencies.

A dealer from a Singaporean joint venture bank said the rupiah had a gloomy outlook for this week, hovering within a tight trading range of 8,650 and 8,750 per U.S. dollar.

"The detention of Sjahril Sabirin and another round of questioning of former president Soeharto by the Attorney General's Office will undermine the rupiah next week," the dealer said over the weekend.

He speculated that the rupiah would, however, be kept in a safe range and that it would not breach its current resistance level of 8,750 as state banks would most likely continue defending the rupiah in the market like they did last week.

"Something that is most feared by dealers -- the rupiah being weaker than the important psychological level of 9,000 -- will easily happen if the rupiah breaches its current 8,750 resistance level," the dealer warned.

The rupiah nowadays reacts quickly to bad news on one hand, but hesitates to respond to positive news on the other, he said.

"The only positive news for next week will be the agreement of the loi (letter of intent) to the IMF (International Monetary Fund) and the possible upgrading of Indonesia's credit rating," he said.

The rupiah lost 1.3 percent of its value last week to close at Rp 8,685 against the U.S. dollar, compared to Rp 8,570 the previous week, due to political reasons. (udi)