Rejuvenated rupiah may start to flag

JAKARTA (JP): The rupiah, which perked up to break through the psychological barrier of 9,000 against the U.S. dollar last week, is expected to take a breather from its surge and most probably lose ground due to selling pressure.

Share prices on the local stock market are also expected to go in the downward direction as last week's bullish sentiment will likely be curtailed by investor profit taking, analysts said.

Positive market response to a strong rupiah last week -- which sent the main index on the local market soaring by 15.8 percent -- would not persist as investors started taking profits on the gains, they added.

"Bullish sentiment is only short-lived as certain investors will start selling their portfolio again this week to take profits on the gains they made," an institutional sales broker with Trimegah Securindolestari said.

Analysts said the rupiah would stabilize within the Rp 9,000 level against the U.S. dollar as the driving factor -- the assumption that capital controls might be imposed -- would no longer affect the buying sentiment.

Hopes that Indonesia would impose the control were dashed after Bank Indonesia Governor Sjahril Sabirin made it clear the new currency control system would be applied next year.

Sjahrir said in Washington, D.C., on Thursday that the capital flow monitoring system would not be introduced this year.

"It is not coming out so quickly this year. We are not in a hurry. It is unlikely within the year, but it could be next year."

Stock analysts said market speculation over the capital control system had unnerved offshore operators from building any long dollar positions last week, causing the rupiah to easily gather steam to hover around the 9,000 level against the American dollar, a level not seen since the fall of Soeharto from power in May.

The rupiah closed sharply higher at 9,050 on Friday last week compared 10,775 the previous week due a speculation that the govrnment would soon impose a capital control.

But stock analysts denied the rupiah's recovery reflected the return of foreign investor confidence in the country's economy because the poltical and economic condition remained weak.

"Indonesia has a lot of homework to do, and due to that share prices will likely decline again this week," head of research of Panin Sekuritas Anton Karlam said.

Stock analysts conceded that the rupiah gain had given leeway for most Indonesian debt-ridden companies to restructure their dollar-denominated debts.

"The rupiah recovery only signals hope that Indonesian companies will have breathing space amid this crisis," said the head of research of Vickers Ballas Tamara, Noraya Soewarno.

Anton said that certain foreign investors might continue to buy selected blue-chip stocks early this week to take advantage of the more stable rupiah.

"Besides, some blue-chip stocks have been undervalued."

But the buying spree, which started on the last trading days last week, would only last for the beginning of this week before investors placed large selling orders due to the country's volatile market and dire economic outlook, he added.

"There are no more long-term investors in the local market. They enter the market when there is good sentiment and take profits immediately afterward."

Tamara's Noraya said that the direction of the country's market would entirely depend on the development of external factors as investors did not find any fresh leads from the domestic market.

"Our market rose in two days last week due to the external factors. So we will see how the global market, especially Wall Street, moves this week," Trimegah's broker said.

The Jakarta Stock Exchange (JSX) Composite Price index closed 41.61 points higher to 304.84 last week from 263.22 the previous week.

Total daily turnover rose to 281.14 million shares last week from 203 million shares the previous week.

Total daily transaction value also rose to Rp 259.58 billion last week compared to Rp 174.62 billion the previous week. (aly)