JSX trading to slow down ahead of Cabinet formation

JAKARTA (JP): Share trading on the Jakarta Stock Exchange (JSX) will slow ahead of the announcement of the lineup for the new cabinet later this week.

Securities analysts said the pros and cons about some names, including former cabinet ministers, which are rumored to be part of the new lineup, would certainly affect the market.

"But in general, investors will take a wait-and-see approach before the announcement is made," one analyst said.

The analyst warned that if newly elected President Abdurrahman Wahid failed to form a credible cabinet, the impact would be terrible.

Signs of investors' confidence seen following the fair election of Abdurrahman and Vice President Megawati Soekarnoputri last week would ultimately vanish if the lineup of the new cabinet did not meet people's expectations, they said.

"We have no choice but to assign professionals, especially to fill the economic ministerial posts. Otherwise, we will lose trust for ever," he said.

Foreign investors, thinking that a good cabinet would promise a smoother economic recovery and long awaited political stability for the country, had refrained from reentering the market until such positive signs can really be felt, one analyst said.

"But local players, stealing a start, have showered the JSX over the past three days with strong hopes that the market will quickly rebound on a soon-to-come political stability," he added.

The local participants' rush into the market late last week has allowed the index to book huge gains, ending the week at 604.18, compared to 567.91 the previous week.

President Abdurrahman Wahid, who is expected to announce his cabinet members later this week, is now, in fact, facing some constraint in forming his new cabinet, analysts speculated.

They said Abdurrahman had to go through a complicated process of balancing the need for a clean and professional cabinet with another need of having to return favors to other political parties that gave support in his winning election.

A clean and professional cabinet is simply defined by analysts as a team consisting of those who are not related to the past corrupt government and yet have the related expertise with the corresponding position.

Nurkhamid, the director of Arga Artha Securities, said Abdurrahman's new cabinet had to accommodate the aspirations of the domestic community as well as those of the international, such as the International Monetary Fund (IMF) and the World Bank.

He said these institutions' endorsement on the soon-to-be formed cabinet was positive news for the market.

"The international community actually pays attention to the forming of the cabinet and in fact, they have an objective view on who should be in the cabinet," he said adding that Abdurrahman ought to be careful with his selection.

An analyst from a local private securities company added that as long as the new cabinet team was "rational," foreign investors would quickly enter the market.

"Foreign investors will take the formation of a rational cabinet by Abdurrahman as their virtual command to quickly enter the market," he said.

He suggested local investors to maintain the index above the 600 level as foreign investors were soon to enter the recovering JSX.

"If the index goes below 600, it will mean giving a big discount to foreign investors when they finally enter the market," he said.

Foreign investors are in a wait-and-see frame of mind toward the formation of the next cabinet. Their waiting is bad gambling, he said.

There is strong speculation among foreign investors that the index, whose recent surge was fueled only by locals, will not maintain the 600 level for long.

"They are expecting a fall in the index while they wait for the formation of the next cabinet," he said.

He said assuming the JSX would really rise high within a week or so, it would be a rare occurrence that this time local investors created the market direction, while foreign investors followed behind.

Another analyst said many foreign brokerages were advising their clients that the fair JSX index was between 700 and 750, given the political stability was clearly visible.

Other analysts said the current high index could easily fall below the current 600 level on the bad development of the process of the cabinet formation.

"There were early indications that Abdurrahman had to choose a few unclean people as payment of a political debt arising from their support to his victorious election," he said.

The JSX Composite Index increased 6.4 percent to 604.18 points last week from 567.91 points the previous week.

The average daily turnover last week quadrupled to 2.11 billion shares, compared to just 436.78 million shares the previous week.

The average daily transaction value jumped to Rp 1.8 trillion from Rp 442.08 billion the previous week on the prospect of political stability.

Last week's top gainers were PT Bumi Modern, up 57.14 percent, PT Squibb Indonesia, which went up 54.76 percent, and PT Bank Internasional Indonesia, which also went up 40 percent by the end of the week.

The losers of the week were PT Miwon Indonesia with a 16.67 percent drop, PT Bank PDFCI, which took a 10 percent tumble, and PT Semen Gresik, which fell by 8.57 percent.

The top brokerage firms by transaction value were PT Danareksa Sekuritas with over Rp 1 trillion, PT Trimegah Securindolestari with Rp 783.7 billion and PT Vickers Ballas Tamara, which did Rp 702.6 billion in business.

The rupiah closed at 6,900 to the U.S. dollar last week, significantly stronger than its Rp 8,050 close the previous week. (udi)