Political tension seen sinking market mood

JAKARTA (JP): Escalating political apprehension ahead of the four-day Special Session of the People's Consultative Assembly (MPR) is likely to weigh down sentiment on local financial markets this week.

Financial analysts said on Saturday investors feared that the antigovernment demonstrations, which have taken place almost every during the past few days, would turn tumultuous.

Sigma Batara's head of research, Fadjar Limin Sutandi, said, "The market is closely watching the development of the country's political climate. If the session does not proceed smoothly, the market will get worse."

Analysts said that a lack of any fresh leads at home amid heated political tension in the run-up to the Special Session would not only dampen market sentiment but would force foreign and domestic investors to shun the market.

Vickers Ballas' head of research, Tamara Noraya Soewarno, said, "Rallies which took place over three consecutive days last week were really bad news. And this week, it will further worsen the buying mood."

An institutional broker with Trimegah Securindolestari concurred, saying that investors who placed huge buying orders last week would certainly shun the market on the prospects of massive violence this week.

Analysts and brokers said that heated political concerns ahead of the MPR's Special Session this week would force trading activities to remain quiet as most investors preferred to move to the sidelines.

The MPR is set to convene its Special Session from Nov. 10 through Nov. 13 to determine a date and enact electoral law for next year.

As the session approaches, a growing number of antigovernment groups have staged demonstrations, demanding President B.J. Habibie cancel the session as it would only favor the ruling Golkar political group.

Investors feared that the demonstrations would turn into massive unrest similar to the bloody May riots which led to the resignation of former president Soeharto after 32 years in power, the analysts said.

"This is the main concern for most investors because trading on the country's market will depend on the session proceeding," Fadjar said.

Sharing the stock analysts' view, currency dealers said that trading on the rupiah would remain quiet this week despite the approval of the International Monetary Fund (IMF) loan payment for crisis-hit Indonesia.

The rupiah, which closed weaker at 8,450 on Friday against 7,600 the previous week, would continue to be under heavy pressure in the run-up and during the session, they said.

A chief dealer with a local bank said, "Though the IMF has approved the loan payment, it will not lift market sentiment on the rupiah."

Dealers said that the rupiah was predicted to trade between 8,500 and 9,500 this week.

Dealers said that the loan disbursement, despite good in nature, would not be able to uplift sentiment amid the heated tension of the country's political environment.

The IMF approved a US$960 million loan payment to the country last week, and called on the government to speed the pace of banking reform and debt restructuring.

The IMF has pledged more than $11 billion in loans to that package, and has paid out nearly $8 billion, including Friday's installment of the total $42-billion-plus international package it brokered.

The Jakarta Stock Exchange (JSX) Composite Index closed 17.68 percent (53.20 points) higher to 353.97 last week compared to 300.77 the previous week despite the general bearish outlook on the market.

Analysts said that the price index increase was mainly due to arbitrage trading of telecommunications companies Indosat and Telkom, which are also listed overseas.

The drop in the rupiah encouraged investors to buy the two companies stocks because the currency downfall made the stocks on the Jakarta market cheaper than those listed on overseas markets.

Daily average turnover rose to 318.30 million shares changing hands last week compared to 198.62 million the previous week.

Daily average transactions value surged to Rp 449.71 billion last week against Rp 319.93 billion the previous week. (aly)