The Indonesian stock market will likely remain stagnant in the next few months, unless the government makes a bold move to improve the economy and speed up infrastructure spending, securities analysts say
he Indonesian stock market will likely remain stagnant in the next few months, unless the government makes a bold move to improve the economy and speed up infrastructure spending, securities analysts say.
Three weeks after the market crash in late April on the back of under-performing first-quarter corporate earnings and economic growth, the index has moved cautiously, with no significant upward or downward trends.
The benchmark Jakarta Composite Index (JCI) reached 5,313 in the afternoon trading session on Wednesday, the highest since April 27, as it headed for a third straight day of gains after the stock market ended in week-long red last week.
The index ended 0.44 percent higher to close at 5,292.75, mostly driven by global sentiment and a spurt in the finance and miscellaneous industry sub-sectors ' up by 1 and 1.5 percent, respectively ' after the central bank announced it would loosen lending requirements for banks to support economic growth, a move that was believed would boost property and automotive loans.
KDB Daewoo Securities research head Taye Shim said that while it was unlikely for a near-future market crash to take place after the 3.5-percent decline on April 27, the market also had a bleak outlook to make a significant rebound.
'There could be some volatility. From here we are going to see the market trading sideways and the reason is because we basically don't know how foreigners will repatriate their money. I think it's going to be a very fragile market going forward and investors will take very cautious steps when investing,' he said.
Foreign investors recorded net sells for three weeks in a row, which started after they pulled Rp 7 trillion (US$532 million) from the market in late April. On Wednesday, foreign investors made around Rp 100 billion on net sells.
'The kind of catalyst that investors anticipate right now in the very short term is government action. The government has to act now because it lost its chance to prove that it's willing to grow. It's time for the government to prove it.'
Indonesia's economy grew 4.7 percent in the first quarter this year, the slowest in six years and the slowest since the start of the global financial crisis.
Taye said his company was reviewing its initial year-end JCI projection at 5,878, but was poised to maintain the forecast, saying that he believed the market would move at a faster pace in the second half of this year with infrastructure projects starting to progress.
Mandiri Sekuritas, in comparison, has cut its initial year-end prediction to 5,450 from the previous 6,350, as economic growth remains weak.
Helmy Kristanto of Danareksa shared the same view as Taye and said an improving current account, better seasonality for corporate business on the back of rising consumption demand ahead of Idul Fitri in July, progress on infrastructure development and a greater relaxation of the tight monetary policy would be the keys to pushing
up the index.
'We maintain our belief that investors will continue to take a cautious stance on the market, especially in view of the soft April data,' he said in research published on Tuesday.
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