Rate fear drags down local share prices

JAKARTA (JP): Fears of a further increase in interest rates dragged down share prices on the Jakarta Stock Exchange (JSX) Monday.

Brokers said that most investors were now waiting for another increase in SBI rates as last week's increase had failed to prop up the battered rupiah.

"There are no substantial trading transactions on the local bourse ahead of the holiday as people are anticipating another possible interest rate hike," the managing director of Harita Securities, Christina Lim, said.

The financial markets were closed yesterday in observance of Islamic New Year.

Brokers said many investors sold their bluechip stocks, such as Astra International, Gudang Garam, Indosat and Bank Negara Indonesia (BNI).

"The sales of such big cap stocks undermined the buying mood," one of the brokers said.

The stock price of the country's largest automaker, Astra International, shed Rp 25 to close at Rp 1,725 on 4.74 millions shares traded, Indosat fell Rp 175 to Rp 12,400 on 239,000 shares changing hands, Gudang Garam tumbled Rp 500 to Rp 10,400 on 851,000 shares traded and BNI fell 25 to Rp 500 on 3.75 million shares traded.

The JSX Composite index closed down 4.84 points to 485.64 points on a total turnover of 405.97 million shares changing hands on the regular market worth Rp 523.86 billion (US$64.23 million).

Concerns about another breach in the IMF-brokered reform program and fears that spreading student demonstrations would cause instability also added to the gloomy market outlook, the broker said.

The head of equities at Bahana Securities, Bruce Rolph, said most foreign investors sensed that Indonesia was not showing any serious intention to fully implement the IMF-arranged reform package.

He said irregularities in the clove monopoly and the crude palm oil (CPO) regulations negatively affected foreign investors' sentiment about the local market prompting them to continue staying on the sidelines.

"Most investors stayed away from the market because they see that Indonesia is not serious about the implementation of the package.

"Implementing the reform is more important than signing it."

Under the IMF-brokered $43 billion bailout package, for example, Indonesia is obliged to dismantle the clove monopoly given to the Clove Marketing and Buffer Stock Agency (BPPC) by June.

But reports said another company, PT Kembang Cengkeh Nasional (KCN), also controlled by President Soeharto's youngest son Hutomo "Tommy" Mandala Putra, had been established to take on BPPC's monopoly of the clove trade, the main ingredient of many locally produced cigarettes.

"This move shows that the country is not serious about the IMF," Rolph said.

"Any small sign of backsliding in the IMF reform package will be bad for the country."

He said such bad news might force the IMF to cancel the $3 billion second tranche of financial aid to Jakarta.

Mirroring the stock prices' decline, the rupiah closed marginally lower in moderate trading ahead of the holiday.

"The market was quiet with no investors seen in the market Monday," a dealer with a local private bank said.

He said that spot rupiah closed at 8,150 Monday against the U.S. dollar compared to its Friday close of 7,950. (aly)