Political woes may foil stocks

JAKARTA (JP): Stocks on the Jakarta Stock Exchange (JSX) are likely to remain under heavy selling pressure this week due to the country's heated political developments and high interest rates, stockbrokers and analysts said.

They said escalating student demonstrations were likely to ignite into violent street clashes in coming days making investment risks soar drastically.

"The country is now facing a political crisis rather than an economic one," the head of research at Socgen Crosby Securities Indonesia, Goei Siauw Hong, said.

A stockbroker with BZW Niaga Securities said most foreign investors had expressed fear that the country's political instability would dampen trading activities in the local market.

"There is no more positive news. Everyone is afraid to put their money in the local bourse because of the political instability," the stockbroker said.

Hundreds of students and workers continued with their daily demonstrations last week, protesting the government's decision to raise fuel and electricity prices.

They demanded the government make rapid economic and political reforms to bring the country out of its worst crisis in decades. They also demanded President Soeharto to step down after failing to restore investor confidence in the country.

President Soeharto, however, has threatened to use security forces to crush any unruly student protests in the future.

"The security forces will take action against whoever disturbs national stability," the President said before leaving for Cairo on Saturday for a summit of the Group of 15 developing nations.

Most analysts and stockbrokers shared the common view that the country's political situation had become so complicated that economic and monetary moves alone could not effectively strengthen the economy.

The head of research at Sigma Batara Securities, Fadjar Limin Sutandi, said the worsening political situation would hurt market sentiment.

He also said the recent move by Bank Indonesia to raise benchmark interest rates for its short-term promissory notes (SBIs) would create heavy selling pressure in the local bourse.

The central bank raised its SBI rates again last week between 4 percentage points and 12 percentage points to shore up the rupiah against the U.S. dollar.

One-month SBI rates were raised to 58 percent from a previous rate of 50 percent.

The rupiah, however, failed to strengthen against the American dollar last week, closing at 9,200 on Friday, much lower than the previous week's close at 8,200.

Fadjar said the central bank could further raise SBI rates again in the coming days to defend the rupiah from plunging further against the American greenback since previous increases had shored up the currency.

"The market expects the government to raise the one-month SBI rate to as high as 60 percent," he said.

Analysts said investors would continue to sell their stocks and deposit their funds in banks which offer higher yields.

Managing director of Harita Securities Christina Lim said the local market was far from recovery because foreign investors would likely stay out of the country due to the political risk factors here.

The JSX Composite Index shed 11.87 points, or 2.64 percent, to close the week at 436.65 points from 448.52 the previous week.

Total average daily turnover fell 3.42 percent to 360.14 million shares last week from 372.89 million the previous week.

Total average daily value also declined 17.77 percent to Rp 376.67 billion (US$41.58 million) last week from Rp 458.04 billion the previous week.

Most blue chip stocks ended lower last week with Astra International down Rp 275 to Rp 1,225, Gudang Garam Rp 550 lower to Rp 8,650, HM Sampoerna by Rp 675 to Rp 4,325, Bimantara Citra by Rp 275 to RP 650 and Citra Marga Nusaphala Persada by Rp 100 to Rp 550.

Indonesia's financial market was closed yesterday in observance of Buddha's Day of Enlightenment. (aly)