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Deep market correction possible in H1, says AFN
Asia Financial Network foresees 2010 as a challenging year for IDX investors with negative impacts from domestic political rows, and global economic developments as the biggest potential threats to the bourse
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sia Financial Network foresees 2010 as a challenging year for IDX investors with negative impacts from domestic political rows, and global economic developments as the biggest potential threats to the bourse.
An investment consultant firm AFN says the political row over the government’s decision to bail out Bank Century from collapse in 2008 coupled with massive profit-taking by foreign investors, whose funds make up 70 percent of Indonesia Stock Exchange (IDX) investments, will keep the bourse volatile.
“The market will remain volatile especially in the first quarter of this year,” AFN director Pribadi Agung Sujagad said on Tuesday.
He predicted the index could go as low as 2,200, a 20-percent drop as compared to the current level.
“How the authorities end this case will determine the reputation of the country’s legal enforcers in the eye of investors and should the decision disappoint the market, the impact will be big,” Agung said.
The Century debacle began when the public was shocked by the ballooning bailout fund, which reached Rp 6.7 trillion (US$716 million) by July 25 last year, more than 10 times the initial estimate made when the government decided to bail out the bank.
The government said the bailout was to mitigate a systemic threat to the banking and financial system in the context of the worst global banking and financial crisis in recent times, which impacted negatively on the Indonesian financial system.
An investigative audit by the Supreme Audit Agency (BPK) found possible regulatory violations by the government and central bank in relation to the bailout and the supervision of Bank Century.
Aside from negative sentiments caused by the Century saga, Agung also highlighted the possibility of massive profit-taking by foreign investors after a period of IDX expansion, which could affect sentiment.
After this gloomy outlook for the first half of this year, Agung said the market should bounce back after the expected deep correction. The market would then return to more solid growth in the second semester of this year, with Agung predicting the index would reach 3,000 by the end of this year, he said.
“We still have hope. The economy will continue growing this year, therefore the market is predicted to remain bullish this year,” Agung said, highlighting the performance of the bourse last year, when the IDX composite index grew by almost 87 percent, making it the second best performing bourse in Asia Pacific due to the solid growth of the economy, despite global recession.
AFN predicted that this year, the Indonesian economy may expand up to 6 percent, higher than the 5.5 percent targeted by the government.
With the growth in the economy, Agung believes that a number of sectors in the capital market will remain promising this year, including the energy, infrastructure and automotive sectors.
AFN equity analyst Monalisa said that energy-based companies were the major picks for this year as demand for energy would increase in line with the recovery of the global economy.
