Rupiah, stock prices surge, driven by investor confidence

JAKARTA (JP): The Indonesian rupiah rose 5.6 percent, while the Jakarta Stock Exchange benchmark index touched the 700 point level on Tuesday after Monday's landmark general election.

Currency dealers, stockbrokers and analysts agreed the sharp rise was driven by foreign investor confidence in the country's economic prospects, following a relatively peaceful, free and fair election.

The rupiah shot to 7,610 against the U.S. dollar in morning trade on the Jakarta spot market, before closing at 7,650, compared to 8,105 on Friday.

Jakarta's financial market was closed on Monday for the election.

A dealer with a local foreign exchange bank said offshore operators continued to unload their dollar holdings, following early indications that the major opposition party, the Indonesian Democratic Party of Struggle (PDI Perjuangan), led the vote count.

"Most offshore players were long on dollars, and they wanted to reduce their position by selling dollars, fearing that the new government would fix the rupiah against the dollar at a much lower level," the dealer said.

PDI Perjuangan's executive, Kwik Kian Gie, has floated the idea of fixing the rupiah rate at Rp 5,000 against the dollar.

Another dealer said the decision of the International Monetary Fund (IMF) to disburse a $450 million loan to Indonesia also boosted the rupiah.

"Today, the rupiah was supported from many fronts, from successful elections to the disbursement of IMF loans. All the news coming in was positive."

On Tuesday, Bank Indonesia Governor Sjahril Sabirin said the ideal level of the rupiah was between Rp 7,000 and Rp 7,500 on the back of increasing confidence spurred by the country's smooth general election.

He said at this level the rupiah was neither undervalued nor overvalued compared to the currencies of other crisis-hit nations in the region.

"Between Rp 7,000 and Rp 7,500 is quite a good range for the rupiah," he said on the sidelines of a senior ministers meeting.

Sjahril said there was a good chance the currency would strengthen to the Rp 6,000 level by the end of the year, if the current positive trends continued.

He said the central bank would not intervene on the foreign exchange market to prop up the rupiah.

Bullish sentiments were also evident on the Jakarta Stock Exchange (JSX), with the benchmark index breaking through the psychological barrier of 700 points for the first time since July 1997.

The JSX Composite Index closed at 686.94 points, or 12.18 percent higher than Friday's level of 612.37, with trading value reaching Rp 1.5 trillion.

Gainers outperformed losers by 192 to 2, with 32 counters unchanged.

Institutional sales broker at Trimegah Securindolestari, Vonny Juwono, said investors appeared happy with the voting process, and were confident the election would bring changes to the country.

"The market is confident the election will produce the required political stability, which is important for the recovery of the economy," she said.

Bahana Securities associate director and head of equity sales Andre Cita concurred, saying that foreign fund managers were flocking to the market, following the successful elections.

"It's all very positive. We expect more foreign funds will enter the local market," Cita said.

He said by year end, the index would pass the 800 point level as "a lot of money is still sitting on our doorstep waiting for the right moment to enter".

However, he cautioned that the market would experience corrections on its way toward the 800 point level. "Correction is a healthy phenomenon in any market. And everybody should be ready for that." (rei/rid)