Share prices likely to remain volatile

JAKARTA (JP): Share prices on the Jakarta Stock Exchange (JSX) are predicted to remain volatile this week as most foreign investors would stay away from the market.

Securities analysts said over the weekend that the market outlook would remain bearish due to a lack of fresh incentives.

"I do not see any reason for investors to enter the market right now because depositing their money in banks is still much more profitable," vice president of research of Lippo Securities David P. O'Neil said.

Stockbrokers said that the gloomy prospects of the trading activities on the local stock exchanges were also in line with poor performances in other regional markets.

"I think foreign investors were pure net sellers last week and they will continue to be so this week," said Christina Lim of Harita Securities.

She added that most investors had not yet found the Jakarta stock exchange and other markets in the region favorable investment spots.

Last week, the central bank cut rates for one-week and two- week Bank Indonesia short-term promissory notes (SBIs) by one percentage point each to 19 percent and 21 percent respectively.

Interest rates for one-month and three-month SBIs were lowered by two percentage points each to 25 percent and 23 percent respectively.

This was the second time the central bank cut the rates since it almost tripled the rates of its SBIs to between 27 percent and 30 percent early last month to help shore up the rupiah.

The analysts, however, said that the cut in interest rates was not enough to incite a buying mood.

They said that the high interest rates also raised concern that corporate earnings would decline this year. "This is another factor why stocks are not attractive at present," one analyst said.

"Most listed corporations have to revise their performance due to the rupiah depreciation ... but we do not know yet their revised projection," he said.

However, O'Neil said that the stock market was not that bad for investments because some stocks were still promising.

"Corporations with strong fundamentals and no high foreign debts, are still good," he said.

He said companies of this category included the state-owned telecommunication firm PT Telkom, Indosat, Gudang Garam, HM Sampoerna, Daya Guna Samudera and Davomas.

"We have put a buy recommendation out for these stocks," he said, adding that some stocks had been very cheap.

The central bank started raising interest rates early last month to defend the rupiah.

The rupiah had been under pressure since the Thai government devalued its currency early July. This caused the Indonesian currency to drop by about 20 percent since then. The uncertainty in the money market also created turmoil in the equity market.

"The market is predicted to recover in six to seven months. It means that the market will stabilize next year," an analyst said.

Last week, the rupiah strengthened against the dollar with spot rupiah closing at 2,930/2,936 from an opening of 2,950/2,960.

But most analysts could not forecast at what level the rupiah currency would stabilize and when.

President Soeharto predicted last week that the rupiah would soon stabilize and find its new market equilibrium.

The President reaffirmed that the government would do its best to keep the rupiah from a further depreciation and if necessary, intervene in the market using "sophisticated" instruments.

"This really sends a very positive sentiment to the market," said Syahrial, Pentasena's head of research.

Trading activities recovered early this week as investors reacted to the government's decision to abolish the 49 percent ownership limit imposed on foreign investors, pushing up prices of most popular stocks.

However, share prices lost footing before the close of the week, causing a 7.9 percent drop in the JSX composite index to 546.64.

The average daily turnover rose 11 percent, to 537 million shares changing hand on the regular market last week from 483 million shares in the previous week.

The average daily value rose 15 percent to Rp 628.9 billion last week, against the previous week's Rp 546.6 billion.

Fadjar Sutandi said that the index could go down to a 530 level this week or even further down to 480.

"If there is no positive sentiment in the market this week ... the index might go down to the 480 point level," he said.

Most blue chip stocks declined last week. Telkom dropped by Rp 225 to Rp 3,350 while satellite operator Indosat dropped Rp 275 to Rp 7,500. Cigarettemaker Gudang Garam lost Rp 1,100 to close at Rp 9,100, while its competitor HM Sampoerna slipped Rp 875 to Rp 7,350.

Bank Internasional Indonesia dropped Rp 150 to Rp 950, Bank Negara Indonesia shed Rp 200 to Rp 975 and Bank Dagang Nasional Indonesia fell Rp 50 to Rp 750. (aly)