Weekly Report 10 December 2007

11 12 2007

Weekly Outlook : The central bank’s decision to cut interest rates provides the impetus for further gains in share prices this week as the year-end approaches. As we had earlier noted, share prices have risen in every December in the last six years – and this year looks like being no exception. And expectations of a cut in interest rates in the US should also add to the positive market sentiment. Thus, against this backdrop, sentiment on the domestic bourse should remain upbeat this week with the JCI heading toward the 2,800 level.

Stocks listed on the Indonesia Stock Exchange, formed by a merger of the Jakarta and Surabaya bourses, rose to new highs last week. The main index even broke through the 2,800 level at one point, although shares later gave up some of their gains on profit taking. Over the week, the index closed 90.62 points higher at 2,778.95. The gains in stock prices were supported by a number of factors. First of all was the unexpected move by the central bank to cut its benchmark interest rate from 8.25% to 8%. This move reassures investors that inflationary pressures are not as strong as earlier feared despite the high oil prices, i.e. the longer-term inflation rate is still benign. On the domestic front, the issue concerning government plans to rein in fuel subsidies remained in the limelight. Yet hopes that the oil price was on the way down – it’ s fallen by more than 13 percent from its recent high – suggest that the government may not have to implement such plans. And even if they do, the idea of requiring private motorists to use nonsubsidized fuel is now becoming increasingly more accepted since the less well off – such as those who use motorcycles or public transport – would not be affected. Doubts, however, remain over implementation. Read the rest of this entry »

Weekly Report 3 December 2007

4 12 2007

Weekly Outlook : The subdued inflation for November (+0.18 percent month-on-month) has created positive market sentiment. Hopes are that further rate cuts are possible provided that inflation can be reined in over the next few months. As such, stocks may edge higher this week with the JCI heading toward the 2,730 level. Yet longer-term there are some dark clouds on the horizon, with the prospect of the government adopting a policy to restrict supplies of subsidized fuel posing a major downside risk to stock prices.

Indonesian stocks climbed higher last week despite soaring crude oil prices. There were a number of supporting factors. First was the improved sentiment on Wall Street as well as on regional markets as investors surmised that the Fed would be forced to play its hand and cut rates in the future in order to avert economic weakness. And from the domestic side, concerns over the controversial ruling against Temasek eased as investors increasingly believe that the initial adverse market reaction was overdone. Stock wise, coal miners and CPO stocks continued to perform well. Hence, against this backdrop, the JCI put on an impressive head of steam last week, gaining103.98 points or 4.0 percent to 2,688.33.

In the last six years, Jakarta stocks have risen in every December: by 5.0% in 2006, by 6.8% in 2005, 2.4% in 2004, 12.0% in 2003, 8.8% in 2002 and 3.1% in 2001. But the market has been in a bullish trend in these years of course. Indeed, the JCI showed an average monthly return of 4.6% in 2006, 1.4% in 2005, 3.7% in 2004, 5.2% in 2003, 0.67% in 2002, and a negative 0.5% in 2001.

Government might limit Premium fuel sales According to news reports, the government is strongly considering the idea of whether to force all private motorists to switch to non-subsidized fuel (such as Pertamina’s Pertamax brand) from subsidized Premium petrol starting in January next year. To achieve this goal, the government would strictly limit supplies of Premium petrol. Thus, with limited availability of Premium fuel, motorists would have little choice but to switch to unsubsidized fuel brands. However, it is not clear how a workable mechanism could be devised to ensure that non-private motorists – such as operators of public transportation vehicles – would still be able to obtain premium fuel.

Indonesia’s automakers said last week that they would limit increases in car prices to only around 2-3 percent next year despite rising inflationary pressures. This, they say, is far below the level needed to take into account the impact of surging crude oil prices and other rising costs. According to the automakers it is not possible for them to raise prices too much given the elasticity of demand to hikes in selling prices. As such, automakers’ margins may be squeezed unless they can find other ways to slash costs (i.e. cutting marketing and advertising budgets etc). At the same time, the weak rupiah is also hurting automakers, pushing up the cost of raw materials. Indonesia Weekly Market Report 3 December 2007