Positive market sentiment to drive stock index up

The Jakarta Post, Jakarta

Positive sentiment in the local stock market is expected to prevail next week although profit-taking in certain stocks would limit the upside potential, an analyst said.

Prasti Rindrawati, a dealer with a Jakarta-based securities firm, said that the index still had good chance of climbing on optimism that the world economy would be back on track toward recovery, which would eventually benefit the Indonesian economy and corporate sector.

"As fears of a long war in Iraq have now subsided, market players are feeling relieved because now at least one uncertainty has gone.

"It was the trend last week and I think it will remain so this week. Not as sharp as last week because profit-taking will also take place," Prasti told The Jakarta Post on Sunday.

Following the U.S.-led occupation of Baghdad, the Jakarta Composite Index, chasing the upward trend posted by world markets, last week jumped by more than 8 percent to close at 438.55 points, compared to the previous week's when it ended at around the 400 level.

Last week's daily volume also increased threefold compared to the previous week, averaging 665.6 million shares worth Rp 639.2 billion (US$71.8 million) per day, up from 207.14 million shares worth Rp 177.482 billion.

Although the trend was likely to continue, Prasti cautioned that profit-taking would limit the gains achieved: "Profit- hunters will need to cash in their gains from last week. Still, the index should manage to climb by around 1 percent."

However, rising fears associated with Severe Acute Respiratory Syndrome (SARS) still had the potential to deflate the optimism, she added.

The economic impact of the disease on the global economy could be enormous, economists said, especially as the disease was most prevalent in countries that had been enjoying solid economic growth, such as China, Hong Kong and Singapore.

If China's economy slowed down because of SARS, it would eventually further damage the already fragile world economy.

Turning to the currency market, the rupiah is expected to remain firm against the U.S. dollar this week, maintaining its solid performance over the past few weeks, a dealer said.

"Even during the war, when there were widespread fears of violent rallies here, the rupiah remained steady," he pointed out.

He expected the local unit to hover next week at between Rp 8,850 and 8,900 against the dollar, not much different from the current range. The rupiah closed last week slightly stronger at 8,876 against the U.S. dollar, compared with 8,885 the week before.