Rumored Cabinet reshuffle feared to hit stock market

JAKARTA (JP): Unconfirmed reports of more reshuffling in the Cabinet will likely continue to cause jitters to investors on the Jakarta Stock Exchange (JSX) this week, securities analysts said.

The analysts said that the rumors reflected uncertainty in the Cabinet and this would send wrong signals to both equity and currency markets.

"If President Abdurrahman Wahid goes ahead with such a plan, it will certainly send a big blow to the market," one security analyst said.

Speculation about the planned reshuffle came about after the President, also known as Gus Dur, suspended former Coordinating Minister for Political Affairs and Security Gen. Wiranto and State Secretary Ali Rahman early last week.

The replacement of Gen. Wiranto cheered the market but it did not last long as investors started to dump their shares the following day due to the unconfirmed plan to reshuffle.

Jasso Winarto, analyst at Sigma Research, said the market sentiment was very negative last week and the sentiment would likely continue to undermine the market. A possible cleansing of military officers loyal to Gen. Wiranto would worsen the sentiment, he added.

"Gus Dur's administration in most cases fails to produce positive sentiments for investors," he said. He estimated the Jakarta Stock Exchange (JSX) Composite Index would decline further by between four and five percent this week.

"Investors are all waiting for positive news, but they are wondering what could the positive news be?" Jasso added. Fear of interest rate hikes in the United States will also add to the weak sentiment, according to him.

The U.S. Federal Reserve recently raised its interest rate in early February by a quarter percent and is expected to raise another quarter percent in March.

The interest rate hike could dampen the stock exchanges there and in turn could have domino effects on other markets worldwide.

"There were many negative sentiments last week, and they will still be there," said another analyst at local securities company.

Concerns that Indonesia's weighting in the Morgan Stanley Composite Index (MSCI) might be reduced could also contribute to the poor outlook next week, another analyst said.

International investors use the index to determine the relative portion of investment portfolio allocation among countries in which they invest.

Foreign investors were seen selling their blue chip shares last week to leave the local stock exchange for other markets in the region.

The JSX Composite Index dove six percent last week to close at 599.57 points, down from 635.07 the previous week. The daily average transaction value decreased to Rp 933 billion last week, compared to Rp 1.04 trillion the previous week.

The daily average turnover also decreased to 741 million shares last week from 1.14 billion shares the previous week.

Last week's top gainers were PT Mitra Rajasa, whose shares increased 45.45 percent, PT Soedarpo Corporation (35 percent) and PT Tirta Mahakam Plywood Industry, which rose 30.91 percent.

The week's big losers were PT Bakrie Finance Corporation, whose shares fell by 50 percent, PT Argha Karya Prima Industry (29.03 percent) and PT Bank Niaga, which experienced a 28.57 percent fall.

The top brokerage firms by transaction value were PT Credit Lyonnais Indonesia with Rp 681.52 billion in transactions, PT Danareksa Sekuritas (Rp 369.44 billion) and PT HSBC Securities with Rp 342.40 billion in transactions.

Rupiah

Jasso estimated the rupiah, which showed a sign of strength following the announcement of Wiranto's replacement, would also be affected by the negative sentiment in the equity market.

"Some investors have a negative feeling about the rupiah right now and has prompted them to buy dollars to reduce risk," he added.

Foreign exchange dealers said some local corporations also showed up in the currency market and bought dollars last week to finance their debts and imports, said a dealer.

Amid the weakening rupiah the government expressed its prediction late last week that the currency should appreciate to between 6,000 and 7,000 to the greenback.

The rupiah depreciated by 1.6 percent to close the week at 7,405 to the U.S. dollar.

Meanwhile, the treasury bonds launched on the Surabaya Stock Exchange (SSX) early this month booked transactions worth Rp 5 billion, priced at 96 percent of the bond face value.

These were the first transactions made on the treasury bonds.

The SSX traded Rp 2.16 trillion of the total Rp 255 trillion treasury bonds issued by the government last year to finance the costs of recapitalizing the country's ailing banks.

The bonds received a cool response from investors. (udi)