Stocks slump on huge sell-off of Salim stocks

JAKARTA (JP): Share prices on the Jakarta Stock Exchange (JSX) lost almost 4 percent yesterday, driven by massive sell-off of stocks connected to the Salim Group, stockbrokers said.

The rupiah stayed flat at 10,500 in lackluster trading as the market remained confused by indications on interest rate directions, currency dealers reported.

Stockbrokers said the continuing deposit run on the country's largest bank, Bank Central Asia, which is considered the Salim Group's "jewel", prompted investors to dump stocks associated with the conglomerate.

"The massive sell-off of stocks related to Salim like Indofood and Indocement have dragged down the market. People are nervous about holding those sensitive stocks," said a stockbroker with a joint-venture securities house.

JSX Composite Index dropped 3.9 percent, or 17.092 points, to close at 416.967, with total trading volume of 261 million shares worth Rp 234 billion (US$22.3 million).

Losers outnumbered gainers by 117 to 25 with 53 counters unchanged.

Food producer giant PT Indofood Sukses Makmur and cement producer PT Indocement Tunggal Prakarsa, both controlled by the Salim Group, dropped significantly.

The Salim Group is controlled by Sudono Salim, also known as Liem Sioe Liong, a close business associate of former president Soeharto.

Indofood was suspended in afternoon trading after falling 30.9 percent, or Rp 750, to Rp 1,675 on 9.03 million shares traded. Indocement also dropped Rp 100 to Rp 2,900 on 263,000 shares traded.

A securities analyst at DBS Securities Indonesia, Michael Gilmore, said the market was extremely vulnerable to rumors following the ousting of Soeharto from the presidency last week.

"This drop is very rumor-driven as the market is very susceptible to rumors given the factors of the instability of last two weeks."

Rumors related to sensitive business groups, though very unreliable, could move the market, he added.

He said companies with strong links with Soeharto and his cronies could suffer in the near term as the movement against corruption, collusion and nepotism gained momentum.

"We all know a lot of big companies have been strengthened by connections with the first family (Soeharto). And those connections are now worth nothing, and it will take time for those companies to reestablish their strength or establish new strength."

The movement against corruption, collusion and nepotism in businesses would eventually create good, efficient companies in two to three years time, he said.

Some analysts said the outlook of the rupiah and stock market would continue to be bleak until the date of general elections was set.

Currency dealers said the rupiah was hardly traded yesterday on the local market as most operators took a wait and see strategy amid the current uncertainty.

The rupiah was practically unmoved from the opening. It closed at 10,450/10,550 against the U.S. dollar on the Jakarta spot market, exactly the same with the previous day's close of 10,500.

"Market players were unmoved by talks about the possibility of interest rate cut by Bank Indonesia as indications for such a rate cut were not strong enough," a local bank dealer said.

"Nevertheless, the fate of the rupiah now is not anymore determined by interest rates but more by political factors."

He forecast the rupiah could strengthen in the near future even if the central bank cut its benchmark interest rates provided that political reforms proceeded smoothly.

Dealers said current negotiations between the International Monetary Fund and government officials would also dictate the direction of the rupiah.

"If the fund decided to resume its loans to Indonesia, we can expect that the rupiah would strengthen again to cross the 10,000 level," another local bank dealer said. (rid)