Stock gains likely to decline in second semester

Stock gains likely to decline in second semester

Rendi A. Witular, The Jakarta Post, Jakarta

After booking a record advance in the first semester of this
year, gains in the stock market are likely to slow down in the
second half over fears that the performance of listed companies
may not be as good as expected, analysts said on Friday.

Political tension ahead of the 2004 general election and the
lack of positive news during the third quarter of this year will
also contribute to the sluggish trading.

Danareksa Research Institute chief economist Raden Pardede
told The Jakarta Post that gains in the second half might not be
as high as those in the first half unless listed firms improved
their performances in line with the improvement in macroeconomic
conditions.

"If listed companies cannot improve their revenue performances
in the second half in line with improved macroeconomic
indicators, we cannot expect another record in the second half,"
said Raden.

Raden explained that the gains during the first half were
purely driven by the improving macroeconomic indicators, such as
the drop in interest rates and inflation, and the strengthening
of the rupiah against the U.S. dollar.

With all the sparkling macro indicators, many investors in the
first semester switched their money into stocks with the
potential for higher returns, making the Jakarta Stock Exchange
the second best performer in Asia after Thailand.

The index in the first semester rose by 32 percent in dollar
terms.

Many foreign financial institutions also reportedly started to
put money into Indonesia through the stock market once again,
although the amounts were not significant.

Raden said that funds from foreign investors could reach up to
7 percent of daily transactions, up from around 3 percent last
year.

However, he added, foreign investors would likely put their
investments on hold and adopt a wait and see stance until after
the 2004 general election for fear of uncertainty and tension in
the run-up to and during the election.

Raden also said that foreign investors were also tending to
wait for new economic policies to be issued by the government
after the country ended its supervision contract with the
International Monetary Fund at the end of this year.

Head of Research at Rifan Financindo Sekuritas, Haryajid
Ramelan, also predicted smaller gains on the stock market during
the second half of the year.

Haryajid said that over the last five years, trading was
usually slow in the third quarter of each year due to a lack of
positive news that could help lift the index higher.

All positive news coming from annual shareholder meetings and
corporate activities had already been announced between January
and June, he said.

However, Haryajid said that the listing of state-owned Bank
Mandiri and the planned initial public offering by state-owned
Bank Rakyat Indonesia would help break the pattern and support
gains on the stock market.

"The two banks are expected to drive the market higher since
they will become new bluechips," said Haryajid.

Haryajid also said that another point which could possibly
lift the index was the current trend among global investors of
shifting their investment portfolios from bonds to stocks.

"We expect that the trend will be followed by local investors,
since the yield competitiveness of bonds is declining due to the
current drop in interest rates," he said.