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)