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.