Market undeterred by RI-IMF rift, security concerns

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)