Share prices are expected to remain strong this week

Share prices are expected to remain strong this week

JAKARTA (JP): Trading on the Jakarta Stock Exchange (JSX) is
expected to remain bullish this week as more foreign investors
are predicted to return to take advantage of the cheap prices.

Analysts said that the government's decision last week to
scrap the 49 percent ownership limit imposed on foreign investors
would trigger massive buying of blue chip shares.

"Previously, it was very difficult for foreign investors to
buy blue chips because foreign ownership in those companies had
mostly reached the 49 percent level," one analyst said. "It is
now different, you can buy as much as you like," he added.

Other analysts believed that the renewed trading activities of
the blue chips would give a positive spillover to medium-sized
shares, which they said, had mostly been undervalued.

"Just look at the strong buying demand on Friday, most people
entered the market. Such a phenomena will return this week so
people can benefit from the cheap prices," a dealer with a joint
venture brokerage firm said.

"The timing to scrap the 49 percent limit has generated a
noticeable momentum," Setiatno Budiman of Arab Malaysian
Securities told The Jakarta Post.

On Friday, the composite index made its largest intra-day gain
ever, rising 60.24 points, or 11.28 percent, to close at 594.11
against the previous week's close of 493.96 points.

It was the third consecutive daily gain, after weeks of
decline.

The battered bourse began recovering Wednesday as investors
reacted positively to the government's steps to arrest the
negative impact of the rupiah upheaval.

However, the price index is still far below its high of 740.88
on July 8.

The buying spree before the close of the week caused prices of
some shares to increase above the allowable level of 40 percent
in a single day's trading. This caused the stock market authority
to temporarily suspend seven issues: Lippo Cikarang, BAT
Indonesia, Bayu Buana, Clipan Finance Indonesia, Bakrie Land
Development, Keramika Indonesia 53.85 percent and Multi Bintang
Indonesia 44 percent.

The JSX management is expected to resume the trading of the
seven issues today.

Stock dealers regretted the decision to suspend trading.

Currency

The encouraging trading last week was partly the result of
Bank Indonesia's decision to cut the interest rate of its
promissory notes (SBIs) by 300 basis points to 27 percent and 25
percent.

Analysts said the improvement in investors' confidence in the
equity market would also have a positive impact on currency
trading.

They said that the rupiah, which started recovering over the
weekend, would further gain despite the cut in interest rates.

The rupiah strengthened to 2,970/3,000 against the U.S. dollar
onshore late Friday after keeping above the 3,000 level
throughout most of the week.

But most analysts were still cautious about the currency
turmoil which has hit the region over the past couple of months.

Indonesia along with Malaysia, and the Philippines has been
the hardest hit since the Thai baht was devalued early July.

"We cannot predict when the rupiah and other currencies will
stabilize. It is the currency that will dictate the direction of
the stock market," Tjandra Kartika, Vice President of Mashil Jaya
securities said.

Mirza Adityaswara of Morgan Grenfell Asia shared Tjandra's
view saying that the recovery of the country's capital market
still had a long way to go.

"It is difficult to expect the market to recover soon. It will
take at least three to four months to recover.... maybe," he
said.

Minister/State Secretary Moerdiono had also indicated that the
market mechanisms would determine what the rupiah's new
equilibrium level would be.

The JSX Composite index rose by 22.99 percent or 100.151
points to 594.113 last week from 479.014 points at the end of the
previous week.

The average daily turnover rose 20 percent to 483.8 million
shares changing hands last week from a meager 401.80 million
shares in the previous week.

The average daily value also rose 16.6 percent to Rp 546.6
billion (US$197.78 million) last week in comparison to Rp 468.77
billion in the previous week.

Naotake Ikeda, sales and business director of the Asian
Development Securities said that he did not expect the index to
hover to previous high of above 700.

"I don't think, it (the main price index) will get back to
that level. At the most, it will reach between 610 and 620," he
said.

"I am still very cautious about this market. We expect there
will be a slight correction next week with the index hovering
around 600 or just below that level," a dealer with a joint
brokerage firm said.

Of course heavyweight stocks made big gains with the
government's new reform package.

State-run Telkom rose Rp 550 to RP 3,575, Indosat by Rp 1,225
to Rp 7,775, BNI by Rp 175 to rp 1,150 and BDNI by Rp 75 to Rp
800, cigarette maker Gudang Garam shot up by Rp 1,250 to Rp
10,200 and its rival HM Sampoerna by Rp 1,375 to Rp 8,225. (aly)