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.