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JAKARTA - Jakarta's main stock index is set for further heady gains this year, supported by improving economic conditions, firm commodity prices and subdued inflation which should give corporate earnings a boost, encouraging fresh capital into the sharemarket, analysts said. They are picking a gain of between 16-43 pct, after last year's 55 pct surge, which saw the composite index repeatedly setting new records to finish 2006 at an all-time high of 1,805.522 points.
The lion's share of last year' rise came in the second half, as a series of central bank interest rate cuts and softer inflation numbers encouraged investors, while the rupiah strengthened. Over the course of 2006 Bank Indonesia trimmed its benchmark rate a cumulative 300 basis points, to 9.75 pct by year's end. The consumer inflation rate meanwhile finished the year at 6.6 pct, from 17.11 at end-2005, while the rupiah rose 7 pct to around 9,100 to the dollar.
This year economic conditions will remain favorable, with GDP seen growing 6.3 pct from an estimated 5.8 pct last year, the analysts said. Inflation should moderate further, providing scope for more rate cuts, though they are unlikely to be as frequent , or as large, as in 2006. Firm commodity prices, driven by rising global demand and tight supply for some goods, are also expected to continue this year, and that will boost mining and agriculture-based companies in particular.
"There is room for the market to extend its gains this year, building on the positive factors that began to emerge in the second half of last year such as falling inflation and interest rates," Satrio Utomo, an analyst with Recapital Securities, was quoted by XFN Asia as saying.
Mega Capital analyst Ikhsan Binanto expects the heavy cuts in interest rates to pave the way for a pickup in private consumption, investment and government spending. The government of President Susilo Bambang Yudhoyono has already pledged to accelerate its infrastructure program in 2007 and is also planning to boost the salaries of civil servants, which should aid consumption.
Valuation-wise, though Binanto cautioned that the market was starting to look a little pricey relative to some of its neighbors, such as Malaysia and Thailand. Nevertheless the bright prospects for corporate earnings, aided by increased consumer spending and investment, will continue to make local stocks attractive.
Better than 2006
In addition the absence of any increase in fuel and power tariffs this year is a bonus for the economy that will remove a key cost concern, Binanto noted. The government previously pledged it would not raise the tariffs in 2007, citing the need to curb inflation and keep the economy on an improving track. "2006 was a good year for the market and 2007 will be even better..."
Interest rates are coming down, while inflation is lower," UOB Kay Hian Securities analyst David Chang said, adding he sees the main index ending the year comfortably above 2,000 points. The sectors likely to be in vogue, are those seen benefiting the most from easier interest rates, and rising commodity prices. That includes the mining, plantation, construction, cement, property and heavy equipment sectors. Telecom stocks should also gain as cellular subscriber numbers pick up, amid rising consumer purchasing power, Indopremier Securities analyst Suherman Santikno said.
Among forecasts for the full year, Mega Capital was one of the most optimistic, picking the main index to raise 30-45 pct to 2,300-2,580 points by the end of 2007. Indopremier sees the level at 2,200 points, while Erdikha Elit analyst Muhammad Reza was more guarded, estimating a year-end level of 2,100 points. Reza, while cautious on the year-end level, still expects fresh capital inflows as overseas institutional investors plough more money into emerging markets after the stellar performance of many in 2006.
The analysts said the key risks to their bullish views would be any sharp spike in oil prices, or any major negative global development, such as a major slump in the US economy. Any failure by the government to push through with its pledge to accelerate the roll out of infrastructure projects would also hurt certain sectors such as construction and cement producers. "There is no guarantee that oil prices will continue to remain stable.
More instability in the Middle East could drive them higher again," Sinarmas Securities analyst, Alfiansyah cautioned.
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As more and more good figures come out, this should be a sign for the government to loosen the strict regulations regarding investment and ownership here... that would give a boost, maybe like China?
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Hi Yerun, I agree with that. Besides that, the government should focus on certain markets / segments so they can catch up in certain areas of doing business. 3 weeks ago, I had a meeting in Amsterdam with 12 members (together they form the commission in order to reform the current investment law) of the Indonesian parlement. We discussed the current investment law and the changes they suggested. Quite a nice discusssion and very, very good for the interbusiness relationship.
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Every change takes time, but the fact that you were at leas having a conversation with an Indonesian delegation, that means a lot I think. Of course many people want to see proper reforms here, there are enough opportunities here.
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Hi folks,
What's the reason that the Jakarta index performs that lousy last week. Nothing to worry about or is it just een technische correctie zoals dat hier in Holland zo mooi heet?
http://finance.yahoo.com/charts#chart1:symbol=^jkse;range=1y;indicator=dividend;charttype=line;crosshair=on;logscale=on;source=undefined
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Yerun, it was the fact that the delegation was WILLING to listen to others. That is the change! Furthermore, there were members who asked us for the possibility to start a new relationship between the Netherlands and Indonesia. They refferred to the Common Wealth. 'why not do it?' is their opinion. Exactly ours too of course. It will be good for business and people.
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Jantje
User
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Hi Dutchess,
I got this from www.bloomberg.com. Maybe a nice buying oppertunity. 
Indonesia's key index plunged 8.4 percent, Asia's biggest decline, on concern the government might impose market restrictions after the Thai Cabinet tightened foreign investment rules. PT Bank Mandiri, the nation's largest lender by assets, slid. Thailand's SET Index rose, snapping a five-week slide, after Credit Suisse Group said the drop had made shares cheap.
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The rumor that the Indonesian government might impose market restrictions is just contrary with what the government is doing at the moment: working on a more liberal market economy.......always nice to watch: the principles of a stock index and on what it is based.
By the way, the reason that the Thai stock exchange declined the past month, is that the Thai government implemented a new investment rule (in order to protect the Thai bath currency. The rule makes sure that the (foreign) investment stays in the country for at least one year. Trade and Services are excluded from this rule.
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So a non-event actually as the index is rebounding. We have to cope with this kind of 'liberal far east thinking' I guess.
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