President's call may help ailing stocks

JAKARTA (JP): President Soeharto's instruction to state-owned companies to boost their portfolio investments will help restore the ailing stock market, said securities analysts.

"It is really good news for investors. I think it will help bring back the buying impetus," vice president of Mashill Jaya Securities Tjandra Kartika told The Jakarta Post Saturday.

He said although it will take several days for the state-owned companies to comply with the President's instruction, the impact of the order will be psychologically significant enough to renew trading activities.

On Friday, Soeharto instructed state-owned companies to allocate at least 1 percent of their profits to buy shares on the local stock market to help restore the weak trading activities.

The President has also instructed the monetary authorities to use the US$5 billion standby loan from Singapore as low-interest credits to improve the liquidity of big and medium companies.

Tjandra said with a total profit of about Rp 6 trillion (US$1.7 billion) last year, the country's state-owned companies would have about Rp 60 billion to buy stocks.

"Such an amount is still small compared to the current market capitalization of around Rp 150 trillion," he said. "But it will bring much help."

There are around 178 state-owned companies operating in Indonesia.

A stock dealer with BZW Niaga Securities firms also estimated stock prices would gain ground on the back of the President's call.

She estimated that funds from these state companies would be used to buy undervalued stocks such as those of Bank Negara Indonesia, Telkom, Indosat, Tambang Timah.

Indonesia's Jakarta Stock Exchange (JSX) Composite Index has declined by almost 45 percent from its peak on July 7 to as low as 391.25 points on Friday. At least 70 shares have declined below their par value of Rp 500.

The Composite Index broke the psychological barrier of 400- point level last week on a combination of regional weakness, currency crisis and lack of confidence in the country's financial and capital market.

The President's instruction was, therefore, timely to bring back the buying mood because without such a move, the bearish trading would continue.

"In general, the Indonesian stock market is far from recovering ... it is predicted to continue with its downward trend," Asia Equity's Robert Allison said over the weekend.

"With the current situation, in which the share price index continues falling, no one will fill a buy order. This will make investors more scary," Harita Securities president Christina Lim said.

The analysts said that without a bailout measure, the JSX Composite Index could further plunge to below the 350 level because the market fundamentals remained very weak.

The unfavorable conditions in other regional markets and the lack of foreign presence would make the local trading even worse, they said.

"There is hardly any foreign institutional investors in the stock market. They have long shifted their focus from this region," Mashill's Edi said.

The JSX Composite Index fell 10.9 percent, or 45.593 points last week to close at 391.258 in generally quiet trading. (aly)