Stocks fall on profit taking and soaring interest rates

JAKARTA (JP): Stock prices on the Jakarta Stock Exchange (JSX) lost footing for the second consecutive day yesterday, falling 2.3 percent due to profit taking and soaring interest rates, stockbrokers said.

Local brokerage houses, which made large buying orders on second and third line stocks last week, took profits yesterday in the absence of foreign investors, they said.

"I think the market was largely moved by local brokerage houses and investors," Bruce Rolph, head of equities at Bahana Securities, said.

Local brokerage houses such as Bahana Securities, Makindo and Trimegah Securities were among those making massive selling orders.

Rolph said investors were greatly concerned by the stand-off between the government and the International Monetary Fund (IMF) over the former's plan to introduce a currency board.

Investors are worried that the IMF might not disburse the second tier loan from the US$43 billion bailout package which is due in March.

"The market is now worried whether the second tier loan will be disbursed in the coming weeks," he said, pointing to mounting international opposition to the plan to set the rupiah at a fixed exchange rate to an anchor currency, most likely the U.S. dollar.

Stock analysts said that soaring interest rates in the local banking system were also partly responsible for the slump in the stock market.

"I think it is understandable if people prefer to invest in time deposits which offer higher returns now than the stock market can promise," Fadjar Limin Sutandi, head of research at Sigma Batara Securities, said.

Several banks, desperate for rupiah liquidity, have raised their deposit rates to as high as 27 percent per annum.

Fadjar and Rolph also said that the market had been dampened by the tense political atmosphere. Demonstrations and riots have been seen in some parts of the country.

"But such sporadic riots and protests seem to have become a common phenomenon in the country," Bahana's Rolph said. "The market will plunge drastically only if there is a violent demonstration or riots involving a huge number of people."

The JSX Composite index fell 11.48 points to close at 483.41 yesterday, with 886.51 million shares, worth Rp 843.99 billion ($92.74 million), changing hands on the regular market yesterday.

As stock prices fell, the beleaguered rupiah strengthened to close at Rp 9,100/9,300 against the U.S. dollar, up from an opening value of Rp 9,450, currency dealers said.

Currency dealers are anxiously awaiting a statement from the government regarding a currency board system. Rumors of 'something big' by the end of this week have spread through the market.

"The market believes that the government will announce a currency board system later this week," a dealer with a local bank said.

The dealer said that buying and selling orders from local and offshore players were balanced yesterday. (aly)