Digital movement: Modern electronics retailer PT Electronic City Indonesia president director Inggrid Pribadi (left) looks at the companyâs share movement, as the company is listed on the Indonesia Stock Exchange (IDX) in Jakarta on Wednesday
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Share prices on the Indonesian Stock Exchange (IDX) tumbled as investors dumped their stocks amid fears that Bank Indonesia (BI) will raise its key interest rate further and the expectation of lower-than-expected second quarter results from publicly listed companies.
Harry Su, the head of research at Bahana Securities, said that the recent fuel price hike had created uncertainty among investors.
'Investors are trying to gauge what the impact of the price hike will be on Bank Indonesia's key
interest rate,' Harry said, adding that a increase in rates would affect the country's gross domestic product (GDP) growth.
The Jakarta Composite Index (JCI), the main price indicator on the exchange, dropped by 3.2 percent to end the day at 4,577.55 after a slight increase following significant falls in the past two weeks.
The index fell to its low of 4,418.8 on June 24, from its peak of 5,214.98 on May 20, due to massive outflows of foreign funds from the bourse.
Analysts have predicted that Bank Indonesia (BI) will increase its benchmark interest rate as well as the overnight deposit facility rate (Fasbi) to counter the surge in inflation.
Central Statistics Agency (BPS) data shows that inflation hit 1.03 percent in June, causing inflation for the January-June period to reach 3.35 percent, with year-on-year inflation at 5.9 percent.
BI previously indicated that it expected the rate of inflation to go as high as 7.9 percent following the fuel price hike.
Harry added that investors were further 'alarmed' by the World Bank's move of cutting its forecast for Indonesia's economic growth to 5.9 percent from 6.2 percent on the expectation of limp domestic spending and declining exports.
'Investors are right to act cautiously because at the end of the day, they do not know yet the severity of the situation,' he said.
He added that investors would utilize the soon-to-be-released second-quarter earnings as a barometer of the real impact of the economic jitters.
He said that corporate earnings were expected to slow down in the second quarter as operating profits grew by only 4.4 percent, almost half the 8.2 percent growth recorded in the same period last year.
Net profit accretion, he added, would also weaken to 4.7 percent, far lower than the 6.7 percent growth seen in the same period last year.
'Weak corporate earnings will further erode investor sentiment,' he said, adding that negative sentiment could stymie the JCI throughout the month.
Reza Priambada, an analyst at Trust Securities, said that trading volume at the bourse on Wednesday fell below that of the previous day.
'Today, 3.3 billion shares were traded for a value of Rp 5.46 trillion [US$549 million]. But yesterday, 3.9 billion shares were traded for a value of Rp 4.5 trillion,' he said.
He added that Wednesday's trading session was marked by share sell-offs, hence causing trade value to increase compared to the previous day, despite the dip in trade volume.
He further said that the lackluster performance of the JCI on Wednesday had taken its toll on PT Electronics City Indonesia (ECII), which officially entered the bourse on the day.
'The company is strong fundamentally, but the negative sentiment overhanging the bourse today sparked a sell-off in its shares,' he said.
The company saw its share price slip to Rp 3,800 after opening at Rp 4,050.
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