Stocks tumble almost 9 percent, rupiah firm
JAKARTA (JP): The country's rattled stock market took another big hit on Tuesday sinking almost 9 percent, while the rupiah closed slightly firmer against the U.S. dollar, stock analysts and dealers said.
Stockbrokers and analysts said that swirling market speculation that the government would introduce a Malaysian-style capital control system had triggered massive selling by both foreign and local investors in the hard pressed stock market.
"The speculation forced most foreign investors to liquidate a lot of their portfolios in the emerging market funds, including Indonesia," Bahana Securities associate director and head of equity sales Andre Cita told The Jakarta Post.
Widely circulated market speculation suggested on Monday that the government, despite repeated denials by the monetary authority, would impose such a capital control after International Monetary Fund (IMF) Asia and Pacific director Hubert Neiss said that short-term capital controls might have to be adopted in Asia.
Bank Indonesia Governor Sjahril Sabirin reiterated on Tuesday that Indonesia would not copy Malaysia's new foreign exchange regime. But he did not rule out any changes in exchange rate policy.
"We are looking into all possibilities, but not capital control," Sjahril told journalists after meeting President Habibie.
Cita noted that groundless rumors on a foreign exchange control had weighed down sentiments on the local market, forcing existing investors to pull out.
"There are just too many rumors in the market. Investors are panicking and they are just selling off their stocks to cut losses," Cita said.
The Jakarta Stock Exchange (JSX) Composite Index fell 8.9 percent, or 28.44 points, to break the 300-point level to a five- year low of 292.15 on a total turnover of 311.69 million shares changing hands valued at Rp 386.94 billion (US$33.21 million).
An institutional dealer with Trimegah Securindo Lestari said joint-venture securities houses like Vickers Ballas Tamara, SBC Warburg, Indosuez WICarr, Jardine Flemming and ING Barings were net sellers.
The head of research at Trimegah Securindo Lestari, David Chang, attributed Tuesday's decline in stock prices not only to market speculation on a capital control but also on political and social instability at home.
But he advocated that the government adopt a stringent capital control because he believed it could revive the country's wrecked economy.
"Actually, it's already late, when foreign private funds have already left the country. But it's better late than never," he said.
Unlike the stock market, the rupiah closed firmer against the American dollar on Tuesday in moderate trading driven by market jitters to cover short rupiah positions over a possible implementation of a capital control.
Currency dealers said the rupiah shot up to reach a day high of 10,850 to the dollar, but slid again to 11,075 at the close, slightly stronger than Monday's close at 11,550,
"Many offshore operators cashed in their dollar holdings for rupiah to cover their short positions on the rupiah," a chief dealer with a local private bank said.
Dealers also said that persistent daily dollar selling for the rupiah by state banks had partly contributed to the currency's strengthening. (aly/prb)