Upward trend in price of shares to continue

JAKARTA (JP): The upward trend in the price of shares on the local stock market will likely continue this week following reports on the improvement of the country's economic fundamentals, securities analysts said.

"We are fundamentally stronger now, with a more stable inflation and improved production activities," said an analyst at a local brokerage house.

But, he said, concerns over the country's environment of high interest rates and the still fragile political conditions would continue to affect the buying mood.

"The Jakarta Stock Exchange (JSX) Composite Index will still be able to maintain its upward movement but the gains will be limited as cautions remain," he said.

The Central Bureau of Statistics (BPS) issued on Friday an encouraging report on the country's economic indicators, with a lower inflation rate showing a downward trend.

Exports and imports also showed significant growth in the period January to May, reflecting an improvement in the country's economy.

The JSX Composite Index, which fell below the 450 level early in June and stayed below 500 for quite some time, showed an encouraging performance last month and gained about 16 percent from a month earlier.

The index rose another 2.4 percent last week to close at 515.11 points, compared to 503.14 the previous week.

Another analyst from a foreign brokerage house agreed that the Composite Index still saw an upside this week, saying "The market continues to recover, but slowly."

Posing suspicions about the recent market development, equity analyst Dandossi Matram speculated there had been invisible hands serving to support the Composite Index from falling.

There is the question of how the Composite Index has managed to rise by 16 percent within the past month, despite higher interest rates, the heating up of the political condition and sluggish regional markets, said Dandossi.

"Don't ask me for a logical explanation for it, but the Composite Index did rise last week and is expected to rise further next week," he said over the weekend.

The Composite Index rose by 16 percent from 444.44 points on the first trading day of June to 515.11 points on the last day of the same month.

Meanwhile, the central bank last week allowed the benchmark interest rate on its one-month SBI promissory notes to increase from 11.74 percent to 12.33 percent, the highest level since the end of last year.

Dandossi surmised the upward movement of the Composite Index was merely political, adding that there were some interest groups who would like to prop up share prices ahead of the August preliminary meeting.

"It is sometimes forgotten that political battles exist on the JSX floor, like during the Soeharto regime, the Habibie transitionary period and now with the current administration," he said.

In August, president Abdurrahman Wahid is scheduled to deliver his accountability speech before the Consultative Assembly's members, in which he has to explain his economic performance as well as his controversial decision to abruptly expel two of his Cabinet members from strong opposition parties in March.

Dandossi said there was at least a month of consistent buying through a particular foreign broker, despite the fact that there had not been any positive news in the country.

The buy recommendation will probably be visible during the period ahead of August, but investors ought to be careful, according to Dandossi.

"It's like having a buffer for our stocks, holding them so they won't go down too much. But the danger of artificial Composite Index levels is always there," Dandossi said.

In contrast to the occurrences at the JSX, the rupiah lost ground last week, despite a rise in the central bank's interest rates.

Dealers said concerns over what might occur in August is greater than the effect of interest rate hikes. They also said the rupiah this week would be in the narrow range of 8,650 and 8,800.

"The weakening of the rupiah last week, despite the interest rate hike, was a clear sign that concerns about political events in August is there," said a dealer.

The rupiah lost about one percent of its value last week to close at Rp 8,765 against the U.S. dollar, compared to Rp 8,685 the previous week. (udi)