Rupiah, stock market brace for U.S revenge

Rupiah, stock market brace for U.S revenge

JAKARTA (JP): Concerns over a U.S. attack against Afghanistan
could ignite rupiah, stock selling this week as edgy investors
brace for a fully fledged global recession, analysts warned.

Currency and stock analyst Feri Latuhihin at PT Danareksa
Securities said a U.S. attack that stirs up regional
uncertainties, would upset the market here.

"It (the attack) could come like a shockwave slashing the
market," Feri said over the weekend.

The United States is almost certain to attack Afghanistan's
ruling Taliban regime over their refusal to hand over Osama Bin
Laden.

Bin Laden is the prime suspect behind the recent terrorist
attacks in New York and Washington.

Thousands are feared to have died when two planes crashed into
the twin towers of the World Trade Center (WTC) in New York.

Mass layoffs in the airline industry mark the aftermath of the
attack. Now, fear of more layoffs in other sectors is eroding
consumer confidence in the U.S, analysts said.

"You would slash your shopping budget, if you were not sure
whether you would still have your job tomorrow," said one
analyst.

Yet a drop in consumer spending would ultimately cut off the
string that kept the U.S economy from derailing into recession,
he said.

At this point, Feri said, U.S. retaliation would further the
descent into global recession, due to increasing uncertainty.

Analysts warned of an uprising of radicals in more moderate
Islamic countries such as Indonesia, should the U.S. invade
Afghanistan.

"The world is already tilting toward recession, the recent
terrorist attacks has just expedited the process," Feri said.

At home, he continued, the rupiah could edge to Rp 10,000 to
the dollar, once news of the U.S attack hit the market.

But according to him, the drop would only be temporary. In the
mid-to-long-term the local unit would hover at between Rp 9,000
and Rp 9,500, he said.

"Bank Indonesia would defend the rupiah if it drops to below
9,500," he predicted, adding that profit-taking on the stronger
dollar would also favor the local unit.

Traders believe the central bank had backed up the rupiah
against the greenback during Friday trading. But the rupiah
closed the week still lower at 9,410 compared to 9,100 a week
earlier.

Feri said a weaker dollar in the global market, reflecting the
U.S.'s ailing economy, would also lend reprieve to the rupiah.

PT Nomura Indonesia stock analyst, Goei Siauw Hong said a U.S
attack against Afghanistan was sure to hurt market sentiment.

He said, although a war in Afghanistan had little or no direct
economic impact on Indonesia, there was concern the uncertainty
might spill over to other regions, notably the Middle East.

This gloomy outlook could translate into more than a 4 to 5
percent loss in the market index this week, he predicted.

Last Friday, the Jakarta Stock Exchange (JSX) Composite Index
slid to 414.42 compared to 425.26 a week before. Dealers said
that a decline in the regional market had led to a selling mood.

Hong suggested investors steer away from export-oriented
companies and focus on those with a healthy domestic market.

"Food-producing companies, pharmaceuticals and cigarette
companies are always needed, in good times or bad," he said.(bkm)