Market to remain bearish despite Miyazawa aid

JAKARTA (JP): Heightening political tension will continue to cast a shadow over trading on the Jakarta Stock Exchange after a new loan commitment from Japan failed to reverse the bearishness of the local market last week.

Stock analysts said lingering political uncertainties and fear of mounting unrest ahead of the general election in June meant the embattled stock market would remain highly volatile.

In such an uncertain situation, they said, the market would overlook positive signs such as the decision of the Japanese government to extend US$2.4 billion in loans to Indonesia under the Miyazawa Plan.

"The positive impact of the Japanese commitment was short- lived because investors remain worried about the country's medium and long-term prospects," Fitri Murniati, a securities analysts with BNI Securities, said.

An institutional sales broker with Mashill Jaya Securities, Antonio Yongnata, agreed, saying the outlook of the local stock market had not changed and share prices would continue to remain under pressure.

Fitri added that share prices would remain very volatile this week because of profit taking by some investors.

Such a sharp volatility in share prices would force most investors to change their investment strategy from long-term investments to short-term speculative trading.

"Basically there are no more long-term investors here," Fitri said.

An institutional sales broker with Trimegah Securindolestari, Vonny Juwono, said the lack of long-term investors had caused daily trading volume on the local market to decline sharply to around Rp 150 billion ($17 million) from Rp 400 billion several months ago.

"Most investors prefer to take a wait and see attitude and are still closely watching the country's efforts to emerge from the economic crisis," she said.

However, BNI's Fitri said certain stocks on the local bourse still offered investors some profit opportunities, especially blue-chip stocks with high liquidity and stocks in export- oriented companies.

She warned, however, that potential profit opportunities would be capped if the government raised interest rates.

The benchmark rate of Bank Indonesia's one month promissory note rose slightly to 36.97 percent last week from 36.53 percent the previous week.

Increasing interest rates harm the stock market because investors prefer to invest in the money market when the interest rates rise, Fitri said.

The Jakarta Stock Exchange (JSX) Composite Index fell 6.39 points to close at 405.55 last week, down from 410.55 the previous week.

Daily average turnover was 309.6 million shares last week compared to 250 million shares the previous week.

Daily average transaction value dropped to Rp 259.04 billion last week from Rp 267.88 billion the previous week.

Financial analysts and currency dealers said the fate of the rupiah, which managed to hit a weekly high of 8,450 against the dollar on Wednesday, would not improve because sentiment on the local currency remained bearish.

The rupiah closed 4 percent higher at 8,700 against the greenback on Friday, compared to its 9,050 close the previous week.

Most dealers said they expected the local unit would be traded between 8,500 and 9,000. (aly)