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Jakarta index dives below 400-point level

Markets Post - November 21, 1997

Jakarta – Jakarta's main stock index smashed through the key 400-point barrier to hit a 50-month low yesterday, with analysts expecting further downward pressure as investors reduced their holdings.

"Players are getting out of the market, selling as much as they can in anticipation of tougher times ahead," an analyst with a European brokerage said.

The Composite Index dived 4.7 per cent to 396.13 points.

It touched a record high of 742.95 on July 9 amid bullish sentiment that it could reach the 800-point level by the end of next month.

"But that was an old story. That was shortly before the regional currency turmoil began taking its toll on the stock market," Jordan Zulkarnaen, of Pentasena Arthasentosa brokerage, said.

The analyst said stories of mounting foreign exchange losses, high interest rates and rising prices of many basic goods were yesterday's headlines and these could become bankruptcies and lay-offs if the government failed to address the problems.

Agung Prabowo, of Danareksa Sekuritas, said there could be further downward pressure because news that the government had no plans for a direct or indirect bailout for private companies heightened worries over the ability of the private sector to pay foreign debts.

Finance Minister Mar'ie Muhammad told parliament on Wednesday that whether a private debt was rolled over or not was an issue between private firms and their lenders, and the government had no plans to intervene.

He said the country's foreign debt was US$117.3 billion at the end of September, consisting of government debt of $52.3 billion and private debt of $65 billion.

Analysts said the International Monetary Fund-led reform package agreed last month had boosted market sentiment only briefly as the full impact of Indonesia's economic crisis hit home.

"The crisis appears to be difficult to cope with, particularly when it has to deal with the interests of those that benefit hugely from monopolies and the like," the European brokerage analyst said.

Mr Prabowo, however, said the market had overreacted to the IMF-led reform news and had expected too much and too soon from the deal.

"There will be costs to any reform, but it's going to get better. For long-term investors who have the liquidity to hold on, this must be the time to buy," he said.

Mr Prabowo said an IMF review of progress in the reform package expected in April next year could have significant impact on the market.

If the review was positive, he expected the index to stage a significant rebound.

Analysts said the index could fall to the 350-point level by the end of next month but was not expected to reach 300.

"It seems highly unlikely that the index will touch 300 as this would mean that most of the top 10 stocks would be traded below their book value," another analyst said, adding that the stocks were now trading between 1.5 and two times book value.