Political tension likely to worsen stock market
JAKARTA (JP): The country's escalating political tension may further worsen the stock market, which has been severely hit by the central bank's high interest rate policy over the past several weeks, analysts have said.
The analysts said over the weekend that fears of the escalating political tension and the government's commitment to adopt a high interest rate policy would be the main concerns.
With such a gloomy outlook, investors would normally tend to sell rather than buy, they said. "At least, they will be on the sideline until the climate is improving," one of the analysts said.
Research director of Mashill Jaya Securities, Tjandra Kartika, told The Jakarta Post that growing campus demonstrations would become more violent.
He said that with such a worsening condition, security officials would have not choice but step up efforts to ensure national stability.
"If that happens, it means there will be more clashes between students and the security apparatus. The impact of this will be very negative to the stock trading," he said.
University students have continued to stage daily demonstration over the past few weeks, demanding the government make drastic economic and political changes and for President Soeharto to step down.
President Soeharto issued a strong warning to university students last week that anyone attempting to force a reform program outside the state guidelines would be dealt with accordingly.
"The market perceives that President Soeharto's warning might mean that the government will employ a security approach to dampen student demonstrations in the coming days," he added.
Tjandra also attributed the bearish market to increasing human rights abuses in the country, as foreign investors did not want to put their funds in a country where human rights abuses were rampant.
"I think the overall sentiment in the local market will be bearish," he said.
He said that market fears for a possible hike in the interest rate of the central bank's short-term promissory notes (SBIs) could also lead more investors to put their money into banking deposits.
"I think a higher yield in the banking system will lure investors to put their funds in the time deposits," he said.
He said that a previous rise of SBI rates failed to shore up the rupiah's value against the U.S. dollar.
The central bank had raised its SBI rates to as high as 50 percent mid last month but failed to shore up the ailing rupiah against the dollar.
The rupiah closed at 8,100 against the dollar last week, slightly lower than its close at 7,950 the previous week.
The analysts said that the planned disbursement this week of the IMF's US$1 billion aid would be the only good news.
"Though news on the release of IMF loan is positive, it is not strong enough to whet foreign investors appetites to enter the market," said Tjandra.
He said the disbursement of the IMF loan would be overshadowed by heated political tension, the high interest rate policy and reports on human rights abuse.
The JSX composite index declined by 8.56 percent to 448.52 points last week from 490.48 the previous week.
Total turnover declined by 16.69 percent to 372.89 million shares exchanging hands last week from 447.56 million the previous week.
Total value only dropped by 0.5 percent to Rp 485.04 billion ($59.88 million) last week from Rp 487.64 billion the previous week.
Most blue chip stocks ended lower last week with Astra International down by Rp 250 to Rp 1,500, Gudang Garam by Rp 1,700 to Rp 9,200, HM Sampoerna by Rp 800 to Rp 5,000, Indosat by Rp 1,575 to Rp 11,000 and Telkom by Rp 275 to Rp 3,100. (aly)