Local market set to follow regional bearish trend

JAKARTA (JP): Prices on the local stock market are expected to sink further this week in line with the trend in the region's markets, analysts and brokers said.

They said that forecasts of global recession as result of problems in the Russian economy would continue to hammer Asian financial markets.

"As a result, our small stock market is likely to fall even further," head of research at Vickers Ballas Tamara, Noraya Soewarno, said.

Stock analysts said that fears of a global recession would overshadow any positive news at home like the International Monetary Fund's (IMF) plans to immediately release another installment of the country's bail-out package.

"Positive news about the IMF loan will be overshadowed by bad news about the global economy," another analyst said.

The analysts said the decline in regional markets would further damage investor confidence in the country's weakened economy.

"The general outlook for the country's economy remains poor and no signs of recovery will be seen in the short term," one analyst said.

Johanes Salim from Mashill Jaya Securities agreed and said that prices on the local stock market would continue to fall in coming weeks in reaction to reports of further looting and unrest.

"The main price gauge is likely to hit the 300 points level in the days ahead," he said pointing out that unrest like that just seen in Cilacap, Central Java, where thousands of fishermen ran amok in protest at low wages, would occur again.

Stock prices fell by 4.5 percent to 339.02 last Friday, touching lows not seen since 1993 in reaction to bearish sentiment on the regional and global markets.

Noraya said that foreign investors would not return to the local market until stability had been restored in the country.

"If economic and political stability is not restored, our market will continue to decline," she said.

But associate director of state-owned Bahana Securities Andre Cita said that some resource-based companies with dollar valuations and strong fundamentals should remain the target of foreign investors.

"Despite the gloom, stocks in Aneka Tambang and Tambang Timah should be a good buy," he said.

Noraya disagreed, saying that most investors were no longer basing their portfolio investments on company fundamentals but were following market sentiment.

"Since there is a steady stream of negative news reaching the market ... most investors continue to shun investing in the country," she added.

Stock brokers also said that the strengthening rupiah, which is expected to make further headway in the coming days, would further weigh down stocks in dual-listed firms like Telkom, Indosat and Tambang Timah as a result of arbitrage selling.

"Investors will continue to shed stocks through arbitrage selling due to the strengthening rupiah," a broker with Trimegah Securindo Lestari said.

The Rupiah closed at Rp 11,075 against the U.S. dollar on Friday, higher than its close of Rp 11,700 the previous week.

The JSX Composite Index fell 12.71 percent to 339.02 last week from its close at 388.34 points the previous week.

Daily average turnover fell 7.69 percent to 183.54 million shares last week from 198.82 million the previous week.

Daily average transaction value fell to Rp 242.96 billion (US$22.08 million) last week from Rp 268.68 billion the previous week. (aly)