Trading likely to taper off in wake of banking move

Trading likely to taper off in wake of banking move

JAKARTA (JP): Trading activity in the local stock market is
expected to taper off this week as investors take a "wait-and-
see" attitude following the government's suspension of three
banks and its acquisition of four others, stock analysts and
brokers have said.

Analysts said late last week that investors would stay on the
sidelines during the early part of this week to see if the
government move causes any bank runs.

"If nothing happens Monday, such as a bank run, the rest of
the week will be fine. It means it is good for buying," one
analyst said.

The government's suspension of 16 banks last November prompted
many depositors throughout the country to withdraw their funds
because they feared that such measures would be applied to their
banks as well. The rush of withdrawals in the banking system was
so severe that Bank Indonesia, the central bank, had to provide
massive liquidity credits to several commercial banks.

Associate director of state-owned securities house Bahana
Securities Andre Cita said the country's poor banking system,
combined with a lack of transparency, was the industry's major
weakness.

"Investors will have to carefully watch the impact of the
suspensions first ... before taking any action," another analyst
with a joint-venture securities house said.

"If there is a massive run on deposits, the financial market
will surely experience a dive," he said.

The government suspended the operation of Bank Dagang Nasional
Indonesia (BDNI), Bank Modern and Bank Umum Nasional (BUN) and
took over Bank Danamon, Bank PDFCI, Bank Tiara Asia and Bank
Central Asia on Friday last week to reassure the international
business community that it was committed to cleaning the banking
system.

All banks, except Bank Central Asia, are listed on the Jakarta
Stock Exchange (JSX).

They said that the liquidation of several banks early this
year had prompted most depositors to withdraw their funds from
the banking system. Bank Indonesia has provided Rp 140 trillion
to the industry in liquidity support as a consequence.

The head of research at Pentasena Securities, Mohammhad
Syahrial, said both domestic and foreign investors had yet to
become interested in risking their funds in the local market
given uncertainties in the country's political and social fronts.

"There is no reason for investors to invest in the local
market yet since the portfolio investment yield here is in the
minus column," he said, pointing out that most listed companies
had been devastated by the rupiah's catastrophic depreciation
against the U.S. dollar.

The rupiah, which is expected to strengthen further in the
days ahead to near the 11,000 level, closed higher at 11,700 on
Friday last week compared to 12,700 at the end of the previous
week.

Analysts and brokers said the government's backtracking on its
plan to privatize cement maker PT Semen Gresik was another
negative signal sent to the market.

The government said last week that it would only divest 14
percent of its 65 percent stake in the company, instead of 35
percent announced earlier.

"Negative market response on this plan will stretch out to
other state-owned stocks," Andre said.

Other stocks on the list for privatization are gold and nickel
producer PT Aneka Tambang, tin mining firm PT Tambang Timah,
telecommunications firm PT Telkom and international satellite
firm PT Indosat.

Analysts said that although no major riots broke out prior to
the anniversary of the country's independence on Aug. 17,
lingering worries over another deadly social outbreak similar to
the one May still remained.

"Although business activities have returned to normal, worries
are still lingering," a broker with Trimegah Securindo Lestari
said.

The JSX Composite Index fell to 388.34 points last week from
414.63 points the previous week.

The daily average turnover fell to 198.82 million shares
changing hands last week compared to 277.88 million the previous
week.

The daily average transaction value fell to Rp 268.68 billion
(US$23.17 million) last week from Rp 440.41 billion the previous
week. (aly)