Stocks fall 4.8% as rupiah stabilizes

JAKARTA (JP): Share prices on the Jakarta Stock Exchange plunged 4.8 percent yesterday from persistent regional weaknesses, while the rupiah stabilized close to the 4,400 level against the U.S. dollar, stockbrokers and dealers said.

The exchange's composite index, the main gauge for local share prices, again dropped below the 400-point level yesterday. It lost 19.829 points to close at 396.108.

Trading turnover totaled 409.5 million shares worth Rp 328.013 billion (US$72.7 million).

The rupiah, which opened at 4,405/30 against the greenback in the spot market, weakened to 4,535 in the morning as the South Korean won sharply fell.

The rupiah then strengthened in the afternoon as Singapore operators continued to unload their dollar holdings. The rupiah closed at 4,405.

"This is totally from regional weaknesses. Therefore, the government should be more tactical in intervening in both the currency market and the stock market to save its resources," Martin PH Panggabean of Lippo Securities said.

Another local stock analyst attributed the drastic fall in local stock prices to the suspension of 16 securities houses by the Capital Market Supervisory Agency and the lack of support from state-owned securities firms.

"But I agree with the assumption that the regional factors are much more dominant than the domestic ones. Unless the won settles down, we will continue to be vulnerable," the analyst said.

He added that he did not see any fundamental arguments for investors to reenter the stock market now when the rupiah was faltering and interest rates remained high.

Currency dealers said the rupiah would remain fragile until the end of this year as more and more companies would enter the currency market to buy dollars to pay back their offshore maturing debts.

The rupiah also was seen as very susceptible to various rumors, especially those regarding President Soeharto.

The rupiah was knocked down to an all-time low of 4,600 on Tuesday due to unfounded rumors that Soeharto was seriously ill. It improved a bit Wednesday following news of Soeharto's trip to Kuala Lumpur.

"So many factors can at any time shoot the rupiah down. And the only factor which can boost the rupiah now is market intervention," a local private bank chief dealer said.

"In this situation, many operators practice an in-and-out strategy, buying dollars in the morning and selling them in the afternoon. This way, they can make some profits," he added.

The rupiah, like other regional currencies, was believed to have overshot. Theoretically, investors should have returned to the rupiah. But the reality was that they continued to dump the rupiah, dealers said.

They said when the rupiah closed firmer yesterday in Jakarta, London players started to attack the currency by selling their rupiah holdings.

By 11:00 GMT, dealers said, the rupiah was quoted at 3,610/30.

The chief dealer said Bank Indonesia should start easing liquidity and lowering interest rates to prevent more local corporations from going bankrupt due to the weakening rupiah.

"A tight liquidity and high interest rate policy has proven to be ineffective in stopping the rupiah's depreciation. It's better to abandon such a useless policy," he said.

Currency dealers said Bank Indonesia had been tightening rupiah liquidity in the last few days when the rupiah came under renewed attack.

Yesterday, the central bank absorbed more rupiah liquidity from the market through Bank Indonesia Certificates (SBIs) and swap interventions.

Dealers said the swap interventions would help improve dollar liquidity, reflected by an immediate drop in the overnight dollar rate to 6 percent from around 10 percent.

The overnight swap rate was at -0.1/par, tom/next at -0.1/0.1, one-week at 2/3, one-month at 13/16, two at 20/35, three at 50/60, six at 140/155 and one-year at 330/370 points. (rid)