Market will remain dull as investors lack choices

JAKARTA (JP): The general outlook for the local equity market will remain gloomy this week as some popular stocks, which were the driving force in the market over the last two weeks, are now overvalued, according to securities analysts.

Meanwhile, commodity trading on the Jakarta Futures Exchange (JFX) remained stagnant due to lackluster trading in the physical market, a brokerage firm said.

Analysts are predicting that the prices of some popular stocks might retreat.

"I prefer to say that the market might weaken," market analyst Dandossi Matram said.

With the grim outlook for popular stocks, the choices for investors will be very limited as the prospects for other stocks are still too uncertain.

He said that the surge in share prices over the last two weeks was due more to technical factors than to fundamentals. "That's why it's difficult for these stocks to maintain their performances," he added.

According to him, the rise in the JSX Index last week was mainly the result of a switch in foreign fund managers' investment strategies following the restriction imposed by Bank Indonesia on rupiah forward trading.

The new regulation, which, among other things, bans onshore banks from trading rupiah with offshore banks, has forced many foreign funds managers to switch their Indonesian portfolio to the stock market.

"This has been the main reason whey the index has gone up, it wasn't politics nor the Fed's (United States Federal Reserve) interest rate cut," Dandossi said.

For this week, he said, a technical correction was bound to hurt the local market if market sentiment remained negative.

He added that on a global scale, equity investors might hold on while waiting for the release of statistics that might confirm the U.S. economy was sliding into a recession.

"Even Alan Greenspan cannot foresee the next four months ahead, what can we expect from the rest of us," he said referring to the U.S. Federal Reserve chairman.

The market would need to rely more on local investors for another boost, he continued.

He suggested investors adopt a longer-term investment strategy, as many companies were performing well over the long term.

"I would advise investors to take a long-term approach by buying shares of companies with a promising outlook but which are currently in difficulties due to their debts," he said.

Dandossi referred to companies like PT Indah Kiat Pulp & Paper Corporation and PT Pabrik Kertas Tjiwi Kimia, both of which are subsidiaries of the heavily indebted Sinar Mas Group.

The business group has come under the media spotlight following its gross violation of the legal lending limit ruling in respect of its subsidiary Bank Internasional Indonesia, and the possibility of a default on bond payments by another subsidiary Asia Pulp and Paper (APP).

Dandossi said that if Sinar Mas could weather the storm, shares of Indah Kiat and Tjiwi Kimia were likely to rebound sharply.

Analyst Roberto Pardede of Bank Mandiri sounded a more optimistic note, saying that a technical correction may be averted if reports of companies' financial performance start hitting the market.

"At the end of February, we will likely see a lot of reports for 2000 coming out," he said.

But Roberto did not rule out the possibility of a correction, saying that volatile trading was likely this week.

He said that shares in PT Telekomunikasi Indonesia (Telkom) were a good bargain, after the company acquired a 100 percent stake in cellular operator PT Telekomunikasi Selular (Telkomsel).

Last week, Telkom and PT Indonesia Satellite Corporation (Indosat) agreed to end their cross-ownerships in three of their subsidiaries.

Under the deal, Telkom will spend $945 million and Indosat $599 million in exchanging ownership of their subsidiaries.

With the purchase of Telkomsel, the country's largest cellular operator, Telkom may receive a boost for its future financial performance, Roberto said.

The unexpected announcement of the deal on Thursday caused a rally in the two companies' shares, pushing up the JSX Index to end the day 17 points higher at 440.22 compared to 423.21 the previous day.

But immediate profit taking on Friday led the JSX index to fall to 432.08, ending the week only slightly up from Monday's opening level of 427.91

On the currency market, a dealer with a Singapore joint venture bank predicted continued mild trading of the rupiah.

According to him, the implementation of the non-deliverable forward (NDF) market for the rupiah in Singapore posed no immediate threat to the local unit.

"When trading starts on Monday, the impact will be insignificant," the dealer said.

Several major Singapore banks agreed to create an NDF market for the rupiah to allow the offshore trading of the currency for speculative purposes.

The NDF's creation is a response to Bank Indonesia's new ruling, which limits speculative offshore trading of the rupiah.

But the NDF market gets around the ruling by making settlements in U.S dollar, thus eliminating the need for offshore rupiah.

Analysts fear the rupiah's fluctuations in the NDF market could influence its movements on the local market.

But the dealer said that during the first weeks of the NDF, the influence would be minimal.

"Banks here are not accustomed to such non-deliverable forward markets, we will need time to absorb its mechanisms," he explained.

For this week, he expected the rupiah to remain flat at a level of around 9,600 to the U.S dollar.

Commodity brokerage PT Danagraha Futures recommended a wait and see stance for olein and robusta coffee, because of low trading for olein and declining prices for robusta coffee in the physical market.(bkm)