Stocks index breaks 2,000 level on return of confidence

Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Wed, 06/03/2009 1:03 PM  |  Business

Getting high: A man walks past an electronic billboard detailing the movement of stock prices in Jakarta. The Composite Index passed the 2,000 points level on Tuesday, the highest level this year, before retreating on profit-taking. JP/R. Berto Wedhatama

The stocks index broke the 2,000 points level on Tuesday, the highest this year, with more signs  that the global downturn is easing and investors confidence is returning to emerging markets.

The Composite Index hit 2,043 points in midday trading before retreating to the level of 1,998 on closing, beyond the expectations of the analysts, who had been pessimistic about the index reaching the 2,000 level this year, after last year’s spectacular October market crash.

“We never expected this. All of a sudden plenty of evidence appears showing that the world economy is not as bad as we first thought,” Mandiri Management Investment head of equity investment Kenny Soejatman said over the phone.

He pointed out that despite the global economic downturn    strong and solid Indonesian macroeconomic indicators had helped improve  local stock market sentiment making it more favorable than most emerging markets in the region.

The foreign transaction data from the Indonesia Stock Exchange last week showed that more assets were being bought than sold.   

The stock index has risen 41 percent this year as of May 29, making it the best performer among Southeast Asian markets.

The index may rise a further 19 percent this year as higher commodity prices and lower interest rates have helped cushion the impact of the global downturn on Southeast Asia’s biggest economy, Bloomberg reported, citing a report issued recently by Credit Suisse Group AG.

The central bank now has more room to cut its benchmark interest rate in the next meeting Wednesday on the back of easing inflation figures as reported by the Central Statistics Agency (BPS) on Monday.

Currently the benchmark interest rate stands at 7.25 percent.

The prices of commodities are beginning to inch up, led by oil which is now hovering well above $60 per barrel.

The rise in the oil price is usually followed by the rise of other commodity prices, such as coal and palm oil, which serve as alternatives  to crude oil.

Indonesia’s position as a commodity producing  emerging market with relatively sound economic fundamentals has given the nation a comparative advantage  in the present situation, Kenny said.

Indonesia is the world’s biggest palm oil producer and thermal coal exporter.

Kenny believed that the IDX rise would not be short-lived as this was supported by strong fundamentals, expecting the index to reach up to 2,200 by the end of the year.

However, HD Capital head of research Adrian Rusmana had different opinions about this beyond-expectation rise, saying that the upward trend was too fast and will eventually make prices less competitive.

“It will be difficult to say that it will be sustain in a long time period,” he said.

He said that based on valuation on US dollar, the value of the country’s stock market has increased by 63 percent this year, the forth biggest after Peru (109 percent), Russia (84.75 percent) and Brazil (72 percent).

Bloomberg reported that the four-week flood of money into developing-nation stock funds that drove the MSCI Emerging Markets Index to an eight-month high is sending the strongest sell signal since equities peaked in October 2007.

It quoted Michael Hartnett, a Bank of America-Merrill Lynch strategist who predicted this year’s gains in Chinese, Brazilian and Russian shares.

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