Stock prices, rupiah continue to weaken

JAKARTA (JP): Stock prices on the Jakarta Stock Exchange (JSX) closed marginally lower yesterday on increasing concern about a further decline in the rupiah against the American dollar.

The JSX Composite index closed 4.33 points down at 394.28 as the rupiah broke through the psychological level of 3,800.

Head of research of Pentasena Securities Mohammad Syahrial said that the persistent decline in stock prices was caused by a combination of higher interest rates, the persistent fall of the rupiah against the American dollar, and the bleak outlook of corporate earnings this year and next year.

"Political uncertainties in the face of the upcoming General Assembly meeting to elect new president and vice president in March add to the negative sentiment in the market," he said.

He said most foreign investors, who previously accounted for about 70 percent of transactions in the JSX, had long stayed out of the market and would possibly reenter it again in the second semester of 1998.

"I think most foreign investors will possibly reenter the market at the earliest in the second semester next year," he said.

He said that the monetary crisis would affect corporate earnings in 1998.

"According to our assessment, most companies will record an average 5 percent decline in net profit next year compared to their earning performance in 1996," he said, adding that corporate earning in 1996 was good.

"Most foreign investors have left the market and switched to investing in Asian bonds," he said.

Stock analysts said poor earnings expectations due to foreign exchange losses and fears of a prolonged economic slowdown continued to batter the stock market sentiment.

As stock prices lost ground, the rupiah remained weak against the U.S. dollar yesterday on a contagion effect of the weakening of regional currencies.

"The sharp fall in the (South Korean) won has certainly affected other currencies including the rupiah," a dealer from a local private bank said.

Foreign exchange dealers said the rupiah fell to a day low of 3,840 against the greenback yesterday before settling at 3,815/35 at close.

Currency dealers also attributed the rupiah's fall to rising demand for the greenback from local companies.

"Though trading was relatively quiet there is a strong need for local companies to buy dollars to cover their dollar denominated debts which are to mature this month," a dealer said.

This force, he said, prompted the rupiah to weaken against the dollar. (aly)