Market undeterred by RI-IMF rift, security concerns
JAKARTA (JP): The local equity market continued its upward movement last week amid waves of negative sentiment about strained relations between Indonesia and the International Monetary Fund (IMF), and an outbreak of ethnic clashes in Central Kalimantan.
But many analysts said that last week's negative sentiments failed to break the stock market's upward trend as most investors had already factored them in.
"That much bad news has had little effect on the market," Head of Research at Securities company PT Nomura Indonesia, Goei Siauw Hong told The Jakarta Post on Friday.
The Jakarta Stock Exchange (JSX) composite index climbed to 438.65 from its opening position of 432.08 on Monday.
Hong said that investors had factored in the risk of Indonesia's strained relations with the IMF, as it continued to deny Indonesia access to a US$400 million loan package.
The agency urged the government to meet key economic programs first before expecting the next loan package.
It also expressed concern over fiscal autonomy and the planned amendment to the central bank law that has been guaranteeing Bank Indonesia's independence.
Indonesia's persistence on the two issues has irritated the agency.
Observers warned that the government might lose international support if it fails to resolve its rift with the IMF.
Coordinating Minister for the Economy Rizal Ramli visited Washington last week to mend ties with the IMF. As no word of the meeting's outcome leaked, many worried that things had worsened.
But late on Friday, Indonesian officials and the IMF announced that the meeting had been productive. It remains unclear though, when the agency will dispatch a review team to Indonesia as part of the loan disbursement process.
Hong said that as concerns over economic prospects were mounting the JSX index seemed to have found its stronghold at the 410 level.
According to him, the local market is on an upward trend, spurred by market growth in other regional markets.
He said investors were comparing Indonesia with its other "messy neighbors" who had booked a 20 percent surge. "The market here is undervalued," he said.
Hong said that if Indonesia were to follow its neighbors, the JSX composite index might hit the 500 level a few months from now.
The outbreak of ethnic violence in the town of Sampit, Central Kalimantan triggered investor selling and has added to investors' fears. But the negative sentiment over the racial conflicts had a limited impact as purchases of some blue chip shares still continued.
Thousands were fleeing riot-torn Sampit, as local Dayak people clashed with Madurese migrants, killing over 100 people.
On Thursday the JSX index fell 2.87 points to 437.03, on fears that the fighting might spread to other regions, but a rebound in cigarette stocks capped the trend on Friday.
Security analyst at PT ABN Amro Asset Management Ario Ardhikari said that the current index level was relatively safe for investors to enter.
He said that most investors remained calm at the current level, although bad news continued to hit the market.
"There was a time when they (investors) reacted quickly on either negative or positive news," he explained.
He agreed with Hong that the market was moving upwards, even without signs of some progress in the government's negotiations with the IMF and a change in the economic fundamentals.
According to him, the JSX can maintain its positive trend because of its already low value.
Ario estimated the market to be flat to higher next week, and recommended selective buying in consumer goods and the telecommunications sector.
Since Bank Indonesia has limited rupiah offshore trading, the local currency took the heap of bad sentiments calmly as well.
The central bank's deputy governor Miranda Goeltom said on Friday that the rupiah was stable despite the standoff between Indonesia and the IMF.
According to a dealer at a Singapore joint venture bank, dollar buying from state oil and gas company Pertamina surprised the market.
The dealer said Pertamina, which often sold dollars when the rupiah was under pressure, returned to the currency market last week to buy the American greenback.
"I suspect the company had begun purchasing dollars since Tuesday last week," he said.
Pertamina buys dollar to finance the import of fuel, because dollar earnings from crude oil exports are directly channeled to the state's coffers.
The dealer said that many banks were caught short in dollars during late trading on Friday, so they squared their positions.
"Many had thought state banks would defend the rupiah at 9,650. They (the state banks) actually did, but not enough," he said.
The rupiah ended the week at 9,685 to the dollar, after the local unit opened at 9,610 on Monday.
For next week, he said, the rupiah might dip further, but mild profit-taking could keep the drop in check.
He estimated the rupiah to end the week at 9,700, with 9,750 to become state banks' new defense line. (bkm)