Share prices are likely to remain under pressure

JAKARTA (JP): Stock prices on the Jakarta Stock Exchange (JSX) are likely to remain under pressure this week over concerns of heated social and political tensions and uncertainties surrounding the planned currency board system, analysts have said.

Most stock analysts shared a common view that news reports on sporadic riots and demonstrations in several towns in Java, sparked by escalating prices of basic staples, would thwart market sentiment this week.

"News reports on a sprinkling of demonstrations and riots have killed the market sentiment already. If similar cases occur again this week, the bourse will go down further," an analyst with Mashill Jaya Securities said.

The head of research at Pentasena Securities, Mohammad Syahrial, agreed and said that most investors would not make any long-term investments in the country's financial market now as it was considered too risky.

"There is and is going to be no long-term investors staying in the market if political instability continues to shake the country," another analyst said.

Stock brokers said rioting, political or otherwise, would most likely cast a shadow on stock trading activities in the local market ahead of the presidential election next month.

Members of the People Consultative Assembly will convene here from March 1 to March 11 to elect a president and vice president, with incumbent President Soeharto widely expected to march smoothly toward his seventh consecutive five-year term.

Besides political issues, stock analysts said speculation over which rate the rupiah would be pegged against the U.S. dollar, following a government decision to adopt a currency board system, would also weigh down sentiment on the local stock market.

"The market knows that Indonesia will surely adopt the currency board system to stabilize the rupiah, but the market is now waiting to see at what level the rupiah will be pegged," Pentasena's Syahrial said.

Syahrial, like most other analysts, anticipated that the rupiah's exchange rate would be set at about 5,000, the level the government set in the revised 1998/1999 budget.

Another stock analyst said a short-term impact of the implementation of a currency board system would be raising bank interest rates, which would in turn dampen further business activities.

"When the system is implemented, many more banks will likely collapse," said the analyst who asked for anonymity. He said only the most efficient banks with prudent management would survive.

"The currency board system is just another indirect instrument to scrap weak banks in Indonesia," the analyst said.

However, the International Monetary Fund (IMF) and the World Bank strongly oppose Indonesia's proposal to introduce such a system.

IMF Managing Director Michel Camdessus reportedly sent a letter to President Soeharto arguing against a currency board system which would tie the rupiah to a fixed exchange rate.

Despite such international concerns, President Soeharto has said that Indonesia will adopt the currency board system as it is the best and least-risky alternative for the country to stabilize the rupiah.

Analysts said the market was practically dull last week, but would likely recover after the government announced the rupiah's exchange rate against the U.S. dollar under a currency board system.

The JSX Composite Index closed 16.29 percent lower to 448.15 points last week from 535.42 the previous week.

The daily average turnover last week was 786.86 million shares on the regular market against 789.62 million the previous week.

The daily average value totaled Rp 829.66 billion (US$101.17 million) last week from Rp 791.61 billion the previous week.

Most blue chip stocks ended lower last week with state-owned telecommunications firm PT Telkom sliding Rp 1,075 to Rp 3,200 and Indosat falling Rp 4,800 to Rp 12,000.

Cigarette maker HM Sampoerna fell Rp 125 to Rp 5.500, and competitor Gudang Garam dropped Rp 4,725 to Rp 9,475,

Bank Negara Indonesia (BNI) was down Rp 50 to Rp 550, Bank Internasional Indonesia (BII) Rp 75 to RP 500 and the country's largest automaker Astra International was down Rp 275 to Rp 1,600. (aly)