Local financial market perks up as yuan fears abate

JAKARTA (JP): The local financial market regained some of its recent losses on Tuesday, calmed after tremors subsided from a rumored devaluation of the Chinese yuan.

The rupiah strengthened to close at 9,100 against the U.S. dollar in thin trading and stock prices rose 4 percent, taking heart from Wall Street's overnight gains.

Currency dealers cautioned that the rupiah failed to break the 9,000 boundary level despite its slight recovery.

Dollar demand by local commercial banks remained strong and market anxiety of massive antigovernment demonstrations halted the rupiah's advance.

"The rise of other regional currency markets helped the rupiah to recoup on Tuesday, but fears that antigovernment protesters will eventually go to streets remain," a chief dealer with a joint venture bank said.

Currency dealers said the rupiah, which opened at 9,250/9,300, weakened to as low as 9,325 in morning trade. It gained ground in the afternoon after news from China it would maintain a strong yuan.

"A bank in Singapore actively sold the dollar when it was Rp 9,300," the dealer said. The move helped to boost the flagging rupiah.

Currency dealers said they were surprised to see persistent dollar bids by local commercial banks, including several state banks, which served to keep the currency under severe pressure.

"I think some state banks bought dollars to finance imports of their customers, while other banks bought them for speculative reasons," a dealer said.

Governor of Bank Indonesia Sjahril Sabirin said on Tuesday the government would not step in to defend the rupiah despite the currency's weakening against the dollar in the past few days.

"It is not right if we fight the market as the rupiah's weak stance to the dollar was caused by external factors."

He said market intervention in such circumstances would be futile.

Dealers said the rupiah's rise would be capped by continuing speculation of massive antigovernment demonstrations in Jakarta on Wednesday.

They predicted it would not be able to strengthen below the 9,000 level.

Taking their lead from the rupiah, share prices on the local market rose 4 percent on Tuesday, with the Jakarta Stock Exchange (JSX) Composite Index rising 15.67 points to close at 398.15.

Trading turnover totaled about 198.8 million shares worth Rp 207.7 billion.

Gainers outpaced losers by 56 to 23, with 62 stocks unchanged.

Most large-cap stocks gained ground, with market leader, state-owned telecommunications firm PT Telkom gaining Rp 75 to close at Rp 3,350 on 13.6 million shares changing hands.

Stockbrokers attributed the rise to the general gain in other regional equity markets following Wall Street's overnight gains.

"I think the rise of other regional markets was the main reason for the rise of our market," said Suhendra, an institutional sales broker with Trimegah Securindolestari.

But concerns over the rumored antigovernment protest had forced investors, especially domestic ones, to take a wait-and- see attitude.

Certain offshore investors, however, placed significant funds on Tuesday through several joint venture brokerage firms like Indosuez WICarr Securities, SBC Warburg, Merrill Lynch Indonesia, Jardine Fleming Nusantara and ABN Amro.

"It was a bit surprising to see such buying programs by offshore investors," Suhendra acknowledged.

Stock analysts were pessimistic about lasting bullish sentiment because offshore fund managers remained skeptical over prospects for resolving the country's political and economic crisis in the long term. (aly)