JSX's share prices drop 2.4%

JAKARTA (JP): Share prices on the Jakarta Stock Exchange (JSX) dropped by 2.4 percent yesterday.

Foreign selling pressure was cited, although dealers gave different reasons for the sharp drop.

The Jakarta Stock Exchange composite index, which had declined below its 600 support level on Tuesday, dropped again by 14.57 points to 581.53 at yesterday's close.

The dealers contacted by The Jakarta Post, shared the assumption that what was happening yesterday was nothing out of the ordinary as most stocks listed on the JSX were overvalued.

"I would say that it's due mainly to the overvalued situation in addition to the inclusion of South Korea and Taiwan into the Morgan Stanley Composite index which had lowered JSX's weighting in the indexation," a dealer with a London-based securities company told the Post.

The dealer, who preferred anonymity, rejected the assumption that fear of another interest rate hike in the United States was the main reason.

He also rejected the assumption that the drop was due to foreign fund managers' preparations for the summer holidays.

"What I know is that foreign investors made large selling on Telkom and Indosat in the morning session. A decline on the two stocks then triggered a drop of other big caps," a senior trader with PT Sanyo Primarindo, Najdib Usman, said.

"But most of all, I would say it's a cyclical situation that can happen when share prices already went up to high," he told the Post.

A dealer at PT Peregrine Sewu Indonesia, Chris T., was of the opinion that major selling pressure by foreign investors yesterday was attributable to the decision of Bank Indonesia, the central bank, to widen the intervention band of the money market, as well as overvaluing.

Bank Indonesia yesterday said that it had widened the dollar- rupiah intervention band to Rp 118 or five percent, from Rp 66 or three percent previously.

Chris said that foreign investors are cautious on the central bank's move because it gave a negative indication on the Indonesian economy and its country risk.

"The widening intervention rate obviously will hinder any easy exit mechanism for short-term oriented investors. On the other hand, they have also found out the JSX's share prices are already overvalued. Therefore, they have to take quick actions," he said.

He said that for those two reasons, foreign investors preferred to shift their money to other markets, not to other stocks.

"New initial public offerings could be another reason for yesterday's plunge," he added.

He rejected the idea that the MSCI's decision to downgrade the JSX had something to do with yesterday's plunge. He agreed that fear of U.S. interest rate hikes is over.

Some big caps among the declining stocks yesterday were Telkom which closed down by Rp 125 at Rp 3,200, Indosat by Rp 100 at Rp 10,250, Gudang Garam by Rp 700 at Rp 9,450 and HM Sampoerna by Rp 700 at Rp 26,700.

Nadjib said that Telkom's fall might be triggered by a plan of Deutche Telkom to list its shares on the New York Stock Exchange next week, but another dealer said that there was no direct impact from the plan.

Chris forecasted that the market's downward trend is likely to continue today. (alo)