Recession fears likely to affect local stocks

JAKARTA (JP): Trading in the country's ailing stock market is expected to further send stock prices down this week as fears of a lingering global recession and reports of escalating riots at home continue to kill market sentiment.

Securities analysts said on Friday that most investors feared Russia's economic downturn, which has impacted some countries in Latin America, would further weaken Asian economies.

"Such a gloomy outlook will drag down most major Asian markets, including Indonesia," an analyst at a joint-venture securities company said.

The head of research at Vickers Ballas Tamara, Noraya Soewarno, said many investors had pulled out from the equity market to avoid bigger losses.

"Investors in the local market also did the same thing. They sold to cut losses," she said.

The head of research at Usaha Bersama Sekuritas, Baradita Katoppo, said that the cut-loss trading by foreign investors on most large-cap stocks last week was the main factor behind the sharp drop in the market's price index, which dropped below the 300 point level.

"Although the index rose slightly over two consecutive days before the week's close, the upward trend won't persist," he said.

Brokers said the daily transaction value, which had drastically dropped to about Rp 190 billion in the last several weeks from Rp 600 billion during the market's precrisis period, would likely fall further in the coming weeks.

"Investors will do whatever they can to leave our market," said the head of sales at Mashill Jaya Securities, Antonio Yongnata, pointing out that there was no more positive news to prevent investors from shunning the country's battered market.

Stockbrokers said that many foreign investors were actually encouraged by the strengthening of the rupiah against the U.S. dollar in the last several days but they had yet to enter Indonesia on fears of escalating riots.

A number of riots and looting occurred in several towns in Java last week.

Hundreds of villagers pillaged a teak forest near the town of Ngawi, East Java, on Saturday following labor unrest at textile company PT Indorama Synthetic in Purwakarta, West Java.

Stock analysts said that ubiquitous looting and attacks on stores, plantations and rice mills had become more commonplace over the past few months as the country's economic crisis continued to bite, forcing more people into unemployment.

"Social unrest like this will continue to hurt market confidence," Baradita said.

Stock analysts also said that the strengthening of the rupiah, expected to test the 10,500 level this week, would also determine the direction of stock prices.

Currency dealers said the rupiah, which closed at 10,850 to the U.S. dollar on Friday last week compared to 11,075 the previous week, would continue to fluctuate below the 11,000 level.

The JSX Composite Index fell 3.97 percent, or 13.47 points, to 325.55 last week from its close at 339.02 the previous week.

Daily average turnover, however, rose to 270.82 million shares changing hands last week compared to 183.54 million shares the week before.

Daily average transaction value also increased to Rp 248.11 billion last week compared to Rp 242.96 billion the previous week. (aly)