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)