Stock index soars to 43-month high

Stock index soars to 43-month high

Dadan Wijaksana, The Jakarta Post, Jakarta

The Jakarta Composite Index reached its highest level since early 2000 to break the psychologically important level of 600 points on Wednesday, thanks mostly to continued capital inflows into the local stock market.

The index closed at 605.62 on volume of 1.69 billion shares worth Rp 996.64 billion (US$118.5 million), 2.9 percent higher than the previous day's closing of 588.51.

Dealers attributed the sharp rise to the heavy buying of blue- chip shares, mostly by foreign investors, with state telecommunications firm PT Telkom leading the gainers.

Trading was also boosted by the declining trend in short-term bond yields -- which helped encourage a switch of investment from the bond to share market to seek higher and quicker returns -- coupled with Wall Street overnight gains, the dealers added.

The central bank, in its latest weekly auction, slashed its key interest rate to an all-time low of 8.66 percent, from 8.70 percent the week before.

The recent rally of the Jakarta stock index, despite its limited impact on the overall economy, should be of high importance given that stock market performance is a key factor in gauging the confidence of investors in the economy.

That has been the case for Indonesia since the start of the year, although the economy has yet to pick up optimally -- due to foreign direct investment being continuously in the doldrums. The stock index and the rupiah on the other hand have been bullish.

It remains to be seen whether the positive prospects of the index and the local unit will be translated into returned confidence on the part of foreigners, a prerequisite to boosting direct investment activities.

Elsewhere, Wednesday's trading saw Telkom soar by 9.1 percent to a record high of Rp 6,000, Rp 500 higher than the previous closing, while another state telephone operator, Indosat, gained 1.1 percent to close the day at Rp 9,500.

Indosat's positive sentiment was also helped by its plan to sell its stake in Mitra Global Telekomunikasi Indonesia (MGTI), which runs fixed-line operation in Central Java. It owns 30.5 percent of MGTI.

Shares in the country's top cigarette makers Gudang Garam and Sampoerna were also among the gainers, jumping by Rp 300 and Rp 250 to close at Rp 11,000 and 5,650 respectively.

The country's largest auto producer Astra International was up Rp 50 rupiah at Rp 4,375, while heavyweight Bank Central Asia (BCA) rose Rp 75 at Rp 3,275.

In total, gainers led decliners 78 to 48, with the remainders unchanged.

Meanwhile, the rupiah closed lower on Wednesday against the U.S. dollar, although dealers predict a better future for the local unit, due to an expected inflow of funds from overseas for the purchase of local assets up for sale.

The rupiah closed at 8,440 per dollar, down from a close of Rp 8,415 a day earlier, as corporations moved to buy dollars to meet their obligations.

The government is gearing up to sell a 30 percent stake in Bank Rakyat Indonesia (BRI), the country's largest micro financing bank, next month through an initial public offering.

Although it is be unlikely to be as successful as the sale of the giant Bank Mandiri, high notes have been given also to BRI given its strategic place in the country's banking industry.