Monday's runoff to boost rupiah, stock index

Dadan Wijaksana, The Jakarta Post/Jakarta

The rupiah and stock prices are set to benefit this week from the prevailing positive market sentiment, as hopes are high that the Monday's election runoff will proceed without violence, analysts said on Sunday.

The country is gearing up for an historic moment on Sept. 20, when the first ever direct presidential election will determine who is president for the next five years -- the incumbent, Megawati Soekarnoputri, or her challenger, Susilo Bambang Yudhoyono.

Whoever wins, the currency market is likely to respond positively, according to Pardy Kendi, a director at Bank Buana, providing a further boost for the rupiah, which has been on a rally last week.

"The rupiah closed stronger last week against the U.S. dollar, basically on hopes of a peaceful election. It certainly still has the chance to strengthen further if this actually happens," Pardy said, although he was quick to add that the rise would only be in a narrow range.

"It will probably break the 9,000 per dollar level, but it will not go too far from that as it had a relatively strong rally last week."

The local currency ended 2.6 percent up last week at 9,033, the strongest level in about two months.

Fauzi Ichsan of Standard Chartered agreed the local unit would probably break the 9,000 level against the U.S. dollar, although he warned of a potential reversal in the trend.

"Overall, I am very optimistic about the impact of the election on the rupiah, regardless of the winner. But, we cannot rule out doubts that SBY -- if he wins -- will not enjoy the support of the House," Fauzi said, referring to Susilo by his initials.

Susilo's Democratic Party is a tiny minority in the House, which is dominated by the Golkar Party and Megawati's Indonesian Democratic Party of Struggle (PDI-P).

Both Fauzi and Pardy, however, were convinced that Monday's runoff would at least reduce the political uncertainty which had continued all year long -- thus giving rise to a certain degree of market euphoria and a boost for the rupiah.

Meanwhile, optimism would also prevail on the stock market, with the Jakarta Composite Index expected to maintain its upward trend because of the election.

"The index will continue to rise amid positive sentiment stemming from the election. But, expected profit-taking in the last days of the week will halt the trend.

"So overall, I guess the index will go up by some 1 percent or 2 percent," Dodi Prawira of PT Bapindo Securities, said on Sunday.

Last week, the index closed up 16.851 points at 814.63 with daily volumes averaging 1.423 billion shares worth Rp 1.15 trillion (US$127 million), as against 1.92 billion shares worth Rp 1.08 trillion the previous week.

Figures from the Jakarta Stock Exchange showed that last week was also the third consecutive week that overseas investors were net buyers of local shares.

Dodi said blue chip shares had a better chance of gaining compared to secondliners.

Dodi pointed to shares in Astra International, the nation's largest auto producer, Bank Central Asia (BCA), and Telkom, the country's largest telecommunications firm, as the likely biggest gainers gain this week.