Stock market to return to the unknown

The Jakarta Post ,  Jakarta   |  Mon, 10/13/2008 11:38 AM  |  Headlines

All eyes will be anxiously awaiting how the Jakarta stock market reacts when it resumes trading on Monday, following a two-and-a-half-day suspension, with analysts mixed over prospects for the market's main index amid continued global financial woes.

The suspension revocation was announced by the Indonesian Stock Exchange (IDX) on its website late Sunday -- a move that will test whether measures pledged by the government are enough to restore market confidence.

The confirmation for the opening of the bourse was also made following a public disclosure on Sunday by the Bakrie Group of Companies, which helped drag down the market last week due to swirling rumors that it had defaulted on a US$1.2 billion debt.

In a press conference, PT Bakrie & Brothers, controlled by the family of Coordinating Minister for People's Welfare Aburizal Bakrie, said it would sell its assets, including a 10 percent stake in PT Bumi Resources, as part of efforts to raise $1.2 billion to pay off all outstanding debts.

Shares of Bakrie companies were suspended last Tuesday, one day before the IDX management halted all trading because of the global rout. Bakrie is seeking to extend the suspension of trading of its shares until the transaction is completed this week.

From Monday to midday Wednesday, prior to the suspension, the Composite Index dropped lost around 21 percent of its value amid a worldwide meltdown.

The government subsequently introduced measures to help provide a lifeline to the market and investors.

Included in those measures are the option to buy back shares in state firms of sound liquidity to help ignite trading, and the establishment of a task force to mete out strong action to parties using "unhealthy" methods to benefit from the situation.

At least 15 companies, both private and state-owned, have so far registered to buy back shares, according to the Capital Market and Financial Institutions Supervisory Body (Bapepam-LK). That should include companies in the Bakrie Group, which said Sunday it would buy back as much as 20 percent of stock.

It remains to be seen whether such measures will be enough to comfort the market.

Several analysts were quick to say the measures would fall short.

"There will be massive sell-offs because fund managers in many countries have been waiting to sell their stock now that the global economy lacks liquidity," said Kenny Soejatman, ABN Amro Asia Securities Indonesia head of research.

After being held up during the suspension, many will be looking for an opportunity to sell, Kenny added. "They will sell, no matter the valuation."

Analyst Felix Sindhunata shared a similar view, saying the negative sentiment from regional markets would intensify the pressure to sell.

Commenting on buyback plans by both state and private companies, Felix said he doubted it would bear fruit, mainly because "the market is already in an abnormal state".

Budi Roeseno, Bhakti Securities head of research, was also skeptical of the effectiveness of the government's move to establish a task force to investigate any criminal behavior in last week's trading.

The team includes officials from the Finance Ministry, the State Ministry for State Enterprises, the National Police, the Attorney General's Office and Bank Indonesia.

"The role of this team is not clear yet, but it may actually create fear in companies seeking to speed up the buyback process. They are afraid they may get into trouble because they are not following procedure," Budi said.

However, he added Monday's trading could be determined by the buyback plan, meaning that a recovery is still possible.

"If the government's buyback plan is a success, it's possible the market will rebound on Monday."

All analysts agreed that externally, a positive lead could come from an ongoing meeting of the world's top leaders discussing ways to tackle the global financial turmoil.

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