JCI Endures Worst Week Since Height of Global Crisis

Jakarta Globe, Reuters & Bloomberg, May 07, 2010

Indonesian stocks continued to drop on Friday, while the central bank is believed to have intervened to keep the rupiah steady.

Indonesian stocks tumbled again on Friday, and the rupiah ended its worst week since June 2009, as global investors fled risky assets, while Indonesian officials tried to calm nerves further rattled by Wall Street’s panic-inducing plunge on Thursday.

The Jakarta Composite Index fell 71.28 points, or 2.5 percent, to close at a six-week low of 2,739.33 on Friday. The index has dropped 7.8 percent this week, the biggest slump since the week ended Nov. 21, 2008, in the early weeks of the global financial crisis.

Decliners outnumbered gainers by 185 to 30. Volume was heavy. Some 4.4 billion shares worth Rp 5.7 trillion ($621.3 million) changed hands.

The steep declines prompted Indonesia Stock Exchange (IDX) director Eddy Sugito to say the exchange had no plan to implement a temporary ban on short-selling to prevent steeper drops in the days ahead.

“A ban on short-selling may be required in a time of crisis. Right now there’s no plan to impose a ban on short-selling. I don’t see that it’s necessary as the market’s drop hasn’t been 10 percent yet.”

Norico Gaman, head of research at PT BNI Securities, said the combination of the negative sentiment over European debt and Finance Minister Sri Mulyani Indrawati’s departure was proving painful for investors in local assets. Norico said 2,600 was a critical level on the JCI, and a move below it next week could fuel panic selling.

“Off course there will be an insignificant rebound from selective buying but the trend is still downward” until fears over Europe’s debt crisis ease, he said.

However, some saw a silver lining. Baring Asset Management said fund managers will use the plunge in stock markets triggered by Europe’s debt crisis to buy Asian shares cheaply.

“Long-term investors will use days like today to pick up some stocks which are oversold,” said Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset.

Meanwhile, the rupiah dropped as much as 2.7 percent overnight as the Dow Jones Industrial Average plunged more than 1,000 points in a matter of minutes but recouped most of its losses as the central bank intervened. The currency was at 9,215 versus the US dollar at stock market close on Friday, a decline of 0.3 percent from the day before.

Bank Indonesia acting Governor Darmin Nasution said on Friday he was confident the declines would be temporary.

“We don’t see [the weakening rupiah] as too worrying because fundamentals are still good,” he said. “The central bank is always in the market,” he added.

David Sumual, an economist from PT Bank Central Asia, projected that next week the rupiah will trade from Rp 9,200 to Rp 9,400 level against the dollar.

Indonesian local bond yields jumped to their highest level in more than a month on Friday as concerns of a spreading euro-zone crisis prompted foreign investors to sell risky assets such as emerging market debt.

Bonds in Indonesia have benefited from strong capital inflows in recent months, which had driven yields to record lows last week.

“We have been seeing a lot of selling in markets where foreign interest has been high and this pull-back in Asian assets will continue as long as the crisis drags on,” said Danny Suwanapruti, a rates strategist at Standard Chartered Bank.

“The trend of selling Indonesian bonds is likely to continue for the next few sessions as the European crisis hasn’t subsided,” said Enrico Tanuwidjaja, a regional economist at OSK-DMG Group in Singapore.

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