Stocks, rupiah to remain under pressure this week

Urip Hudiono, The Jakarta Post, Jakarta

Negative news about rising inflation will likely push the stock market into another slump in the coming week, according to a market analyst.

The rupiah, meanwhile, could be dragged down to a new low of Rp 9,500 per dollar if the gains it made last week turn out to be only temporary.

Analyst Ferry Latuhihin of Danareksa Securities said on Sunday that investors had yet to see any significant factors in the country's economy that could help lift the stock prices.

"Inflation has been reported as reaching its highest level for the last two years," he said over the phone. "Meanwhile, the economy is expected to grow moderately by between 5.5 percent and 5.7 percent this year."

The Central Statistics Agency reported last Friday that inflation in March shot up to 1.91 percent -- giving a year-on- year rate of 8.81 percent, much higher than the government's target of 7.5 percent.

Higher inflation will weaken the public's purchasing power, and therefore eat into the revenue and profits of corporations.

Ferry further said that the stock market was also in danger of falling below the 1,000-point level over the possibility of a major rush out of mutual funds.

Many investors, he explained, had put their money into the market through mutual funds after the stock market enjoyed handsome gains over the last two years.

"If investors become disappointed with the market's sluggish performance, they may redeem their investments," he said. "If this becomes a trend, I'm afraid the domino effect could bring the to the 900 or even 850 level."

Opening at 1,100.24 last Monday, the Jakarta Stock Exchange Composite Index slid to as low as 1,065.12 before managing to rebound.

The index closed at 1,095.06 on Friday -- up 14.9 points or 1.38 percent from the previous day -- on the back of expectations of higher first-quarter corporate earnings.

But after the news of the pick-up in inflation, analysts are now predicting that the market is likely to slump anytime soon.

Concerning the rupiah, Ferry said it would remain under pressure as it was also being affected by a lack of positive sentiment.

"The only positive indication, perhaps, is a possible decline in the dollar after being too strong for too long against other major currencies," he said.

The rupiah ended slightly higher last Friday at Rp 9,465 per dollar from Rp 9,485 on opening on the back of the dollar's decline against the euro and Japanese yen. The greenback, however, managed to rise again amid mixed reports on the state of the U.S. and Japanese economies.

Ferry forecast that the rupiah would trade in a range of between Rp 9,400 and 9,500 over the week.

"Without positive sentiment, the rupiah is unlikely to strengthen above Rp 9,400," he said. "On the other hand, Bank Indonesia will continue its intervention in the market and prevent the rupiah from falling beyond Rp 9,500."

Apart from buying up dollars in the market, the central bank recently said it would be more aggressive in raising its benchmark rate interest to curb inflation and mop up any excess liquidity in the market that could hurt the rupiah.

"But a rise in interest rates is always seen as negative news for the stock market," Ferry said.

A rise in the benchmark interest rate could push banks to increase their lending rates, therefore dampening expansion by the corporate sector.