T

he slow recovery of commodity prices in the international market and a weak rupiah will likely perpetuate negative sentiments on the Indonesian Stock Exchange (IDX) this week, analysts said.

After breaking all-time high level of above 4,400 in the first week of January, the Jakarta Composite Index (JCI) fell by 2.36 percent last week to 4,305.91 on Friday compared to its closing price on Jan. 4.

The drop put the index’s year-to-date growth in the negative by 0.25 percent as of Friday. The index rose 12.94 percent in 2012.

Foreign investors sold more Indonesian stocks than they bought on Thursday and Friday, although the total weekly purchases remained in positive territory. Foreign investors’ net purchase of Indonesian stocks touched Rp 2.04 trillion (US$211.72 million) year-to-date, according to data from the IDX.

Growing concerns over high inflationary pressures and the ability of local companies to pay their foreign debts as the result of the sharp depreciation of rupiah against the US dollar would likely create negative sentiment in trading activities on the local stock exchange, said Willy Sanjaya, an analyst at securities company PT Lautandhana Securindo.

“This time, we are losing [control over] rupiah and the currency has been too weak. There is fear the weak rupiah will have negative impacts on companies using dollars in their financial reports,” Willy said.

The rupiah weakened by 5.91 percent to 9,638 per dollar over the course of 2012 according to Bank Indonesia. It touched a three-year low at 9,880 last week, according to Bloomberg. Negative sentiments over the country’s current account deficit also contributed to the rupiah’s decline.

Prices of commodities and mining shares will unlikely be able to gain strength this week despite signs of a recovery in commodity prices such as coal, palm oil and mineral products in the world market, MNC Securities’ head of research Edwin Sebayang said.

Prices of commodities, such as mining products and crude palm oil — which are Indonesia’s main export products — are expected to recover this year on the back of higher demand due to a better economic outlook of the US and China, which is Indonesia’s main export destination. However, a full recovery in commodity prices is not expected to happen overnight.

“The prices of commodities have not yet improved much, and the export performance of our commodities remains stagnant. Only prices of tin and nickel have begun to show upward trends,” Edwin said.

According to figures from the IDX, mining stocks recorded the highest growth at 4.09 percent since the start of the year, followed by the stocks of property firms at 3.51 percent. However, mining stocks were the worst performer last Friday with 1.19 percent drop in one day, followed by agriculture stocks with 1.01 percent.

With the weakening rupiah, stocks of companies with low exposure to dollar risks and with low foreign debt will be top picks, according to Edwin.

“For example, infrastructure and construction stocks [will be attractive]. Commodity-based stocks are actually attractive, however, we must be selective. Coal miners such as ITMG [PT Indo Tambangraya Megah] and PTBA [PT Bukit Asam] are okay as their debt level is low,” Edwin said.  

“However, there must be a commitment from the government to keep a sufficient dollar supply to halt a further drop in the rupiah. We are waiting the government’s move, so that there are no negative sentiments toward the rupiah in the stock market,” Edwin added.

The central bank has said that it has formulated measures to halt a further drop in the rupiah’s value. However, it declined to release specific details on the move.