Tue, 06 Mar 2001

Local stock market to remain flat as Sampit aftermath lingers

JAKARTA (JP): The local stock market is unlikely to experience a quick recovery from last week's fall, when worsening ethnic clashes in Sampit, Central Kalimantan, finally took their toll on the market's upward trend of previous weeks, analysts said on Saturday.

They said that, overall, the market would remain bearish. But signs of improving relations with the International Monetary Fund (IMF) could provide some relief to the bearish market.

A dealer at a local securities company said the repercussion of two weeks of ethnic violence in Sampit, Central Kalimantan, would continue to put pressure on the stock market.

The town of Sampit was the flashpoint of attacks by indigenous Dayak people against immigrant Madurese which almost spread into Palangkaraya, the capital of Central Kalimantan.

Hundreds have been killed, with almost all the fatalities being Madurese.

Even though fighting has abated, problems with Madurese refugees and their traumatic accounts of the massacre kept market sentiment down last week.

"The market will probably remain at this level," the dealer told The Jakarta Post.

The Jakarta Stock Exchange Composite Index lost considerable ground last week, closing at 426.13, down from 438.65 the week before.

On the political front, the dealer continued, investors don't expect positive developments any time soon.

President Abdurrahman Wahid is on a two-week overseas trip to Middle East and African countries, followed by a throng of his ministers. At home, Vice President Megawati Soekarnoputri is in charge.

Abdurrahman is feared to have lost his most vital ally in Megawati following her remark that she had never supported his presidency.

On Friday, a closed meeting of the country's main political parties released hints that Megawati would replace the President in the event of a sudden power shakeup.

The possibility of this scenario grew on Friday when Muslim parties threw their support behind Megawati's bid to lead the nation.

Muslim parties have previously rejected a female president, a stance which paved the way for Abdurrahman Wahid's presidency, blocking Megawati's bid, in 1999.

It is unclear, though, whether a political deal had been struck during the meeting.

For this week's outlook, the dealer recommended buying telecommunication shares and selling cigarette shares.

He added that the result of PT Telkom's 2000 finance report would lend some positive sentiment in the coming days.

"Telkom's profit was in line with, but at the lower end of expectations, and that's only due to heavy foreign exchange losses," he explained.

Telkom's net profit rose on the back of strong operating revenues by 15 percent to Rp 2.54 trillion (about US$259 million), compared to Rp 2.2 trillion in the previous year.

The dealer noted that Telkom's sturdy performance and relatively cheap share price is enticing for investors.

In to the cigarette sector, the dealer said that a planned excise hike on cigarettes, coupled with higher clove prices - the main ingredient of Indonesian kretek cigarettes - could spell trouble for cigarette shares.

PT British American Tobacco (BAT) has estimated sales in 2000 to fall to Rp 900 billion compared to Rp 1.07 trillion in 1999.

BAT said last year's excise tax hike had forced it to raise cigarette prices by 75 percent, compared to an average 25 percent hike by its competitors.

The government plans another excise tax hike this year, but the size of the increase is not yet clear.

"Cigarette stocks have hard times ahead," the dealer said.

He also suggested buying shares of giant food processing company PT Indofood Sukses Makmur.

Indofood's shares took a steep dive when doubts over management transparency hit investors last Tuesday.

In its 2000 financial report, which was out Monday, Indofood posted $50 million in time deposits as non-current assets.

As no details on the asset classification were immediately available, investors ditched Indofood's shares.

Later it was revealed that Indofood pledged its time deposits as banking collateral for loans to several of its palm plantation subsidiaries.

Indofood defended the move, saying thousands of plantation workers would have lost their jobs if no fresh funds had been injected.

"Investors are wary about Indofood's good corporate governance rules," the dealer said.

But he added that since Indofood's shares have sunk so deep, they were likely to rebound this week.

Good news might come from easing tensions between the government and the IMF, he continued.

One of the obstacles in the relationship between the two was the delayed divestment of government stakes in Bank Central Asia (BCA), and Bank Niaga.

Legislators, who had earlier rejected the divestment plan, approved it last week, prompting a positive response from the IMF.

Mandiri Sekuritas analyst Roberto Pardede attributed last week's drop of the JSX composite index more to the heavy plunge of the rupiah.

"The rupiah's fall has made the biggest impact on the stock market," he said.

Last Monday, the rupiah fell to its lowest point in two years, hitting 9,830 against the U.S dollar from its opening at 9,685.

The local unit was knocked down by reports of worsening ethnic clashes in Sampit. There was considerable concern that it may breach the 10,000 level.

"Companies bought dollars to finance their import needs and for debt servicing," Roberto added.

However, he said, as banks' dollar reserves were thin, the dollar gained ground quickly against the local unit.

He suggested that worries publicly listed firms were unable to scoop enough dollars while they were cheap, had burdened the market.

As for this week, he predicted continued selling sentiments except in a few selective shares.

According to him, with news on BCA and Bank Niaga's sales out, their shares offered a good bargain for collectors.

"BCA and Bank Niaga's shares look good in the long term, though we still haven't seen the details of the divestment plan, in particular its schedule," he explained.

Roberto expected the market to hover at 425 to 430 throughout this week. (bkm)