Local market likely to recover in 3 months

JAKARTA (JP): Securities analysts expect the domestic stock market will recover in the next three months if Bank Indonesia, the central bank, further eases the tight monetary policy.

The analysts said the central bank's move last week to cut further the key interest rates on its short-term SBI papers sent a positive signal to overall market activities.

"If such a move is continued, the market will certainly recover," one of them told The Jakarta Post.

President of Lippo Securities, Charles L. De Queljoe, said he believed the government would keep its promise to ease further the tight liquidity in the banking system.

"I think the government will soon make another cut in interest rates to a more favorable level to boost capital market activity," he said.

Another analyst said a further cut in SBI rates was needed to push down deposit rates and lending rates from their current levels.

Bank Indonesia for the fourth time lowered this week its benchmark interest rate for one to three-month papers by one to two percentage points to between 17 percent and 21 percent from between 18 percent and 23 percent.

The local market capitalization has lost more than 20 percent since the central bank raised the interest rates of its SBI papers to as high as 30 percent in July as part of its efforts in stabilizing the falling rupiah.

The Jakarta Stock Exchange's Composite Index further declined to close at 549.92, from 559.22 on the previous day.

The average deposit rates for one-month had declined to 18 percent per annum on the impact of the cut in the SBI rates but most small and medium banks still offer a more attractive range of between 20 percent and 30 percent. The lending rates, as a result, still hover high between 25 percent to 35 percent per annum.

The analysts said that with such interest rate levels, investing money in banks would still provide higher yields than in stocks. The high lending rates will have a negative impact on corporate companies due to the high costs, and could also increase debt defaults.

Bearish local stock markets were also partly due to the unfavorable condition in other regional markets, they said.

"Most foreign investors consider Indonesia along with other countries like Thailand, Malaysia and the Philippines as one investment spot.

"If Thailand is affected, other countries in the region will be affected too," he said.

Indonesia's rupiah was shaken by the Thai baht devaluation in early July and has depreciated by about 23 percent since then.

De Queljoe said market stability in Indonesia and other Southeast Asian countries would stabilize if the money market situation recovers.

"Foreign investors will enter the market if they are certain about monetary stability," he said.

A director of Peregrine Sewu Investment Fund, Deswandi Agusman, said yesterday the situation would soon recover if regional currencies stabilized.

"Regional currencies will stabilize if the Thai government, for example, implements the recommendation set by the International Monetary Fund," he said.

"While regional currencies are still volatile, foreign investors will stay out of the market," he said.

The Capital Market Supervisory Agency (Bapepam) said yesterday it would further encourage local players to improve trading activities.

"The agency will continue to encourage local investors in the market to reduce foreign dominance," said the agency's chairman I Putu Ary Suta. (aly)