Share prices on JSX likely to remain volatile

Share prices on JSX likely to remain volatile

JAKARTA (JP): Share prices on the Jakarta Stock Exchange (JSX)
are expected to remain volatile this week due to continued
uncertainty over rupiah and other Southeast Asian currencies,
securities analysts and dealers said.

They said the sharp rise in interest rates would dampen
trading impetus in the stock exchange as investors would shift
their investment to bank deposits, which would offer higher
gains.

Some analysts estimated stock trading would be even worse this
week, due to the rate woes and the rupiah's uncertain direction.

The rupiah fell to an historic low of 3,045 against the dollar
Tuesday last week following the central bank's move to lift the
intervention band.

The rupiah, however, recovered slightly after the central bank
sharply raised the short-term interest rates. The currency rose
to 2,670 against the greenback Thursday before stabilizing at
2,700 Friday.

Other Asian currencies including the Thai baht, Malaysian
ringgit and Singapore dollar also declined Friday last week after
the rupiah's fall.

Rupiah and other Southeast Asian currencies have been under
severe pressure from speculators following the de facto
devaluation of the Thai baht on July 2.

Martin Panggabean, an economist from Lippo Securities, told
The Jakarta Post that although the rupiah had recovered slightly
against the dollar, it did not mean the currency had stabilized
against the American greenback.

"I don't think the rupiah has stabilized against the dollar...
but it will probably take three to four months to stabilize," he
said.

He predicted the rupiah would reach its equilibrium level of
2,700/2,800 in the next few months.

As a result, he said, nobody expected the stock market to gain
ground given the rupiah's current turmoil.

The central bank increased the interest rate of its short-term
promissory notes (SBIs) by several percentage points to shore up
the rupiah.

Martin even expected the government would raise the reserve
requirement in coming weeks as part of their tight monetary
policies, saying the increase in the short-term rates would not
be enough to further rescue the falling rupiah.

"I won't be surprised if the government raises the reserve
requirement in coming weeks," he said.

"The government might increase the reserve requirement to 8
percent or 10 percent in coming weeks," he said.

The government has increased the reserve requirement to 5
percent from 2 percent since August last year.

Securities analysts estimated that bank stocks would be the
worst hit in the current tight monetary situation.

The analysts said American-based Standard & Poors' decision to
revise the rating outlook on some Indonesian banks would further
hit bank stocks.

Standard & Poors downgraded the rating outlook for Bank Negara
Indonesia (BNI), Bank Danamon and Bank Umum Nasional to negative
from stable.

The rating agency said the outlook revision reflected its
expectation that both the asset quality and profitability of
Indonesia's banking sectors would weaken due to the rupiah's
depreciation against the American greenback.

Moody's Investor Service said Saturday the rupiah's
depreciation in the Indonesian currency market had so far not
affected the country's banks and they did not require a ratings
reassessment.

Moody's said the only serious threat to bank ratings stemmed
from deteriorating credit quality resulting from borrowers'
unhedged foreign currency liabilities or an economic slowdown.

"Until the exchange rate settles, it is premature to assume
that credit quality will deteriorate so badly as to require a
reassessment of Moody's ratings," Reuters reported.

Martin Panggabean told the Post the stock market decline over
the past weeks was understandable due to rupiah scarcity in the
market.

"How can people buy stocks if they do not have money in their
hand?" he asked.

He said some investors had even sold some of the shares they
held to get fresh rupiah.

"People converted their shares into the rupiah to have cash,"
he said.

The JSX composite index tumbled 43.03 points, or 7 percent, to
574.395 points last week, the lowest close since Nov. 1.

Daily turnover averaged 488.60 million shares last week from
299 million shares the previous week.

Average daily value rose 60 percent to Rp 758.48 billion
(US$275.81 million) last week from Rp 474 billion the previous
week.

Dealers said share prices declined sharply by 4.8 percent on
Friday last week, the biggest single-day drop, to close at 574.39
points on weakening sentiments in banking stocks.

They said the JSX composite index recorded its peak on July 7
when it reached 742.95 level before speculative attacks on the
rupiah began.

Most blue chips declined last week with state-
telecommunications firm PT Telkom sliding Rp 50 to Rp 3,400 while
Indosat gained Rp 100 to Rp 7,175, Cigarette maker HM Sampoerna
was unchanged at Rp 7,675 and its competitor, Gudang Garam, fell
Rp 400 over the week to close at Rp 8,900.

Bank Negara Indonesia shed Rp 50 to Rp 1,150 while Bank
Internasional Indonesia lost Rp 100 to Rp 1,100. (aly)