Stock market to recover from recent slump

Stock market to recover from recent slump

Dadan Wijaksana, The Jakarta Post, Jakarta

The Jakarta stock market is expected to recover from its
recent slump as investors will not abandon as yet a market where
most of its stocks are undervalued in a country whose economic
fundamentals are not as bad as many might have said.

An investment analyst at a foreign-based bank also said that
the country might benefit from the WorldCom fiasco, which
reportedly had caused plenty of U.S.-based fund managers to shift
their investments to Asia.

Although it was also WorldCom that has contributed to a sharp
decline in the Jakarta Composite Index, he said, Indonesia should
take advantage of the scandal as plenty of investment
heavyweights were now entering the Asian market.

"... Coupled with the fact that the current prices of some of
leading corporates are considered as very cheap, I think (the)
Index will start to rebound in the near future," he told The
Jakarta Post over the weekend.

"I haven't seen such funds entering the Jakarta market, but we
should not rule out such prospects as our market has been long
regarded as speculative and having a high level of volatility,
making it attractive for punters."

PT Danareksa Securities analyst Ferry Latuhihin also said the
index would climb back soon, amid what he referred to as "the
not-so-bad" macro and microeconomics conditions.

After experiencing a strong performance in the past several
months, the index has been put under heavy pressure in recent
weeks due to external and internal factors.

The index closed lower Friday at 492 points, more than a 50
point drop from its level in mid-June.

"It was external factors such as the WorldCom scandal and also
internal ones, at corporate level, that are to blame for the
index's sharp fall, not the fundamentals," Ferry wrote in an
article published in Bisnis Indonesia recently.

"But this sentiment would soon go away, and the index would
get back on its previous upward track," he added.

Both analysts shared the same opinion that setbacks in various
macroeconomics indicators, such as a drop in foreign direct
investment (FDI) and in exports, were mainly due to a slower pace
of the global economic recovery, therefore they cannot be held
responsible for the index's fall.

The WorldCom scandal erupted last month when the accounting
firm giant admitted that it had improperly booked US$3.8 billion
of expenses.

The scandal spread out bad signals worldwide amid uncertainty
over the pace of global economic recovery, especially in the U.S.
and Japan, sending bourses in many countries stumbling.

The Jakarta stock market was no exception, starting to lose
some of the 36 percent in gains it had recorded since the
beginning of the year.

This has been exacerbated by some questionable corporate
actions.

State-owned telecommunication firm PT Telkom's decision to
cancel the planned issuance of $100 million worth of bonds and
set aside 50 percent of its profit for dividend payment created
worries among market players over the company's liquidity
condition.

And the recent blast near the Army's Special Force building
raised concerns of political and security disturbance ahead of
the People's Consultative Assembly annual session in August.