Stock index falls; Banks, Inco Drop

Stock index falls; Banks, Inco Drop

Arijit Ghosh, Bloomberg/Jakarta

Indonesia's key stock index fell to a six-week low on concern the central bank will raise interest rates further this year to control inflation, which is at a six- year high. PT Bank Mandiri led lenders lower.

Rising rates mean "the bottom line will decline significantly" for lenders such as Mandiri, said Irvin Patmadiwiria, Jakarta- based head of research at PT Batavia Prosperindo Aset Manajemen, which manages the equivalent of US$35 million. He has sold all his bank stocks.

PT International Nickel Indonesia, a unit of Inco Ltd., had its biggest decline in 18 months after investment banks such as JPMorgan Chase & Co. cut their price estimates for the metal.

The Jakarta Composite Index lost 14.71, or 1.4 percent, to 1028.98 at the 4 p.m. close, its lowest since Sept. 28. About four shares fell for each one that rose. The measure fell 3.4 percent this week.

"The index doesn't look cheap at this level," said Mulia Santoso, research manager in Jakarta at PT Bank Negara Indonesia's pension fund, which manages the equivalent of $300 million in assets. It "must fall below 1,000 before we will decide to buy stocks."

Bank Mandiri, the nation's biggest lender, fell Rp 50, or 3.8 percent, to Rp 1,260. Smaller rival PT bank Danamon dropped Rp 125, or 3.4 percent, to Rp 3,550. The banking index, which tracks 64 financial-related stocks, accounted for 18 percent of the main benchmark's decline yesterday.

The banking measure has dropped 4.3 percent since Nov. 1, the day the central bank raised its benchmark interest rate for the fifth time in nine weeks to rein in inflation.

Batavia Prosperindo's Patmadiwiria has about 25 percent of his assets in cash from about 15 percent a month ago. "I have increased cash significantly because I am afraid there will be redemption as the market declines," he said.

Consumer prices in Southeast Asia's largest economy climbed 17.9 percent in October from a year earlier, the Central Statistics Bureau said Nov. 1. That was the highest since June 1999 and followed the government's move to more than double fuel prices on Oct. 1 to cut subsidy costs.

The current benchmark interest rate of 12.25 percent is still lower than inflation, signaling to investors the bank still has room to increase lending costs.

"We're expecting the Bank Indonesia rate to rise to 13 1/4 percent by the end of 2005," said Joseph Tan, an economist at Standard Chartered Plc in Singapore.

PT Gudang Garam, the nation's biggest cigarette maker, slid on concern higher inflation will reduce tobacco consumption. The stock fell Rp 350, or 3.4 percent, to Rp 10,050. PT Unilever Indonesia, the local unit of the world's biggest maker of detergent and shampoo, fell Rp 125, or 2.7 percent, to Rp 4,450.

"Short-term pain inflicted by an inflationary spike will hurt profitability in the near term," Erwan Teguh, research head at PT Danareksa Sekuritas, wrote in a note to investors today. "Consumer companies and banks will bear most of the brunt."

International Nickel Indonesia, plunged Rp 1,100,or 8.6 percent, to Rp 1,750, its biggest decline since May 17, 2004. JPMorgan, the third-biggest U.S. bank, on Nov. 8 cut its average nickel estimate for 2006 by 5.2 percent to $5.465 a pound. ABN Amro Holding NV, the biggest Dutch bank, on Nov. 7 forecast nickel fetching an average $5.30 a pound, 21 percent lower than estimated this year.

The stock has declined 16.6 percent in the past three days on concern profit may decline on lower output and prices. Net income declined 17 percent to $73.2 million in the three months to Sept. 30 from $87.95 million a year earlier, the Jakarta-based company said on Oct. 26. Sales fell 5.8 percent to $219.4 million.