Stocks expected to extend due to interest rate cut

JAKARTA (JP): Share prices on the local market are expected to extend their gains this week in an euphoric market response to the U.S. interest rate cut, stockbrokers and analyst have said.

Stock analysts said the rate cut, coupled with a strong Japanese yen, would certainly ignite an investors' buying spree on the local shattered market.

An institutional sales manager of Mashill Jaya Securities, Antonio Yongnata, said on Sunday, "I think there will be some persistent selective buying in certain stocks this week."

But stock analysts warned, however, that profit taking could take place anytime of the week as some investors might cash in profits made the previous days due to persistent concern over the country's long-term economic prospects.

An analyst with a local securities firm said: "I don't think the economic crisis in Indonesia has yet bottomed out. So, investors might pull back to avoid losses at the end of the week."

Stock analysts said that Thursday's 25 percentage basis points of U.S. interest cut to 4.75 percent per annum spurred stock prices on the local market on Friday, bringing the benchmark price index to jump by 10.7 percent or 32.74 points to close the week at 337.58.

Antonio said that several foreign brokerage firms, which made large buying programs late last week, were expected to continue purchasing blue chip stocks with good prospects on the local market this week.

Stock analysts said the approval of the amendment to the banking law by the House of Representative last week, which allows foreign investors to control a 100 percent stake of a domestic bank, would boost investors' buying appetite, especially into banking stocks.

"I think this is another positive incentive for investors to reenter the local market," another analyst said.

Bank Indonesia governor Sjahril Sabirin said last week that foreign investors' ownership in local banks was no longer limited because foreign investors' help was badly needed to recapitalize the country's ailing banking system.

The Jakarta Stock Exchange (JSX) Composite Index rose sharply by 10.74 percent to 337.58 points last week compared to 304.84 the previous week.

Total daily turnover, however, fell to 222.32 million shares changing hands last week compared to 281.14 million shares the previous week.

Total daily transaction values rose to Rp 261.48 billion (US$31.7 million) last week compared to Rp 259.58 billion the previous week.

Panin Sekuritas' head of research, Anton Karlam, said a strengthening rupiah against the American dollar in the last two weeks would certainly pose a buying impetus for investors to grab undervalued stocks of corporation with huge foreign exchange exposures.

"A strengthening rupiah will provide more leeway for local corporations worst hit by the financial storm to have breathing space to service their debt," he said.

Analysts have said that the U.S. interest rate cut also brought the rupiah to close last week sharply higher, at 8,200 against the American dollar, significantly stronger than its close at 9,050 the previous week.

But currency dealers said that although the rupiah had gathered its pace against the American dollar, its fate would partly depend on the movement of the Japanese yen against the greenback in coming weeks.

A dealer with a local private bank said, "If the Japanese yen continues to gain ground against the dollar, and most of us believe it so, the rupiah would certainly follow suit, provided there is no social unrest and the like happening at home."

The Japanese yen was traded higher at 115.40 against the dollar in late New York trading on Friday after closing its Asian trading at 116.15. The rising yen would provide comfort to other Asian currencies riding on its back. (aly)