Weekly Outlook 19 Nov 2007

19 11 2007

The market may again struggle for direction this week. Concerns that high oil prices will hit corporate profitability will likely limit upside potential. Yet at the same time, shares in companies which are not so exposed to rising energy prices may remain attractive given that the economy is continuing to grow at a faster pace. As such, stocks may consolidate this week with the JCI remaining in the range 2,650-2,700.

Another choppy week for Indonesian stocks as heightened concerns over the threat of inflationary pressures and a possible sharp downturn in the US economy were set against new economic data that shows that the Indonesian economy is picking up its growth pace on the back of low domestic interest rates and buoyant commodity prices. Indeed, according to the data released by the central bureau of statistics last week, the Indonesian economy grew at its fastest pace in the last 10 years, clocking up growth of 6.5 percent in 3Q07, or slightly higher than the 6.3 percent growth rate seen in the second quarter of the year.

Sentiment in the market was also buoyed by the successful IPO of state toll road developer Jasa Marga which stands to benefit if the government can finally get its muchheralded infrastructure initiative off the ground. So far, however, the results have not been good – although, going forward, a more concerted effort by the government to get things right in 2008 is expected.

Energy and commodity stocks did well again last week on the back of continuing positive sentiment in these sectors. Note that Indonesia is a leading exporter of crude palm oil and has vast natural resource wealth including mineral deposits for example. Nonetheless, the JCI was unable to maintain its upward momentum over the week, and by Friday had lost 38.97 points to 2,668.70. Trading was brisk with an average of Rp6.93 trillion worth of shares changing hands each day. Net foreign selling reached Rp814.15 billion over the week.

Global risk factors obviously remain a major concern. And further signs that the US is heading for bleak times could well spread contagion to other markets, including those in Asia. Since even though the region is less dependent on the States now, it should still be remembered that US consumers are easily the world’s biggest spenders – accounting for a hefty 20% share of total global consumption. Hence, if oil prices head even higher while the US housing market remains in the doldrums, then fears are that US consumers will stop spending. As a result, the US economy may falter, and the global economy would be dragged down with it.

Nonetheless, despite these fears, there are a number of factors that might lend support to the Jakarta Stock market this week. First off, the good 3Q07 GDP data has helped give a boost to market sentiment. The GDP growth figure of 6.5 percent in 3Q07 suggests that Indonesian companies have – so far at least – managed to weather the pressures caused by soaring crude oil prices. And supporting such a prognosis are the findings of our bi-monthly business sentiment survey, in which the Business Sentiment Index (BSI) has now risen on seven straight occasions to stand at a level of 135.3, or well above the 100 neutral level – despite rising oil prices. Weekly19Nov07


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