Friday, July 17, 2009

Jakarta Blasts Will Not Impact On Markets

. Friday, July 17, 2009

By stockOzone team

Deadly hotel bombings in Jakarta Friday had only a limited impact on Indonesian and Asian financial markets, suggesting continued long-term confidence in the development of what an increasing number of investors consider a growth engine for Southeast Asia.

However, investor sentiment still could take a near-term hit from reports that at least nine people were killed and 41 injured, many of them foreigners, when bombs exploded in two luxury hotels in central Jakarta.

Authorities were acting on the assumption the bombings were carried out by Muslim extremists, said a senior counterterrorism official.

Jakarta's benchmark stock index had been down as much as 2.6% but then went into positive territory, and midday was down only 1.2%.

Indonesia's currency, the rupiah, fell early against the dollar. But Bank Indonesia was suspected to have sold at least $20 million to $30 million to shore up the rupiah, dealers said.

At midday the dollar was near 10,180 rupiah, compared with 10,205 earlier in the day.

Shares of Holcim Indonesia were down 3.8% at IDR1,280, after the company confirmed its country chief executive was killed in the blasts. Holcim is the local unit of Swiss cement maker Holcim Ltd.

The moderate market reaction was a reflection of continued investor confidence, analysts said.

"Fundamentally, the macroeconomic and political setting remains positive, and a bombing like this should not detract from that. Nor should it be viewed as an indication of general deterioration of security," said Agost Benard, Standard & Poor's Ratings Services primary analyst for Indonesia.

"Global factors are still in favor of Indonesia: pessimism over the U.S. economy is receding, encouraging global investors to reenter emerging markets, including Indonesia," added Standard Chartered economist Eric Sugandi.

Indonesia's economy has pulled through the global credit crisis in relatively fine shape, thanks to resilient consumer spending, continuing to expand even as Asian economies more dependent on exports fell into deep recession.

The International Monetary Fund earlier this month forecast growth in the country's gross domestic product would pick up to 4.5% next year from 3.5% this year.

Parliamentary and presidential elections over the last few months shored up the country's government and gave president Susilo Bambang Yudhoyono a fresh five-year term in office. Mr. Yudhoyono has campaigned as a reformist and won respect from investors for his efforts to liberalize the economy, chipping away at Indonesia's previous reputation as an unstable place. The test now for Mr. Yudhoyono will be how quickly the perpetrators can be tracked down, and determining whether Friday's bombings were isolated or part of a broader assault.

"Investor sentiment will normalize if there are no repeat attacks, and especially if the perpetrators are tracked down," Mr. Benard said.

"Obviously, we'll watch and see what happens but as far as we're concerned it's an isolated incident," said James McCormack, head of Asian sovereign ratings at Fitch Ratings.

Jakarta was hit by similar blasts in 2003 and 2004, while the island of Bali, a key tourist spot in the country, was attacked in 2002 and 2005. But foreign investors were well aware of the risks involved in investing in the country.

"Indonesia has a history" of such domestic incidents, said Brayan Lai, a credit analyst at Calyon.

The cost of protecting Indonesia's government bonds rose. Indonesia's 5-year credit default swaps last traded at 295 basis points, around 20 basis points wider from Thursday's levels, traders said. S&P rates Indonesia BB-, three notches below investment grade, while Moody's Investors Service has an equivalent ranking of Ba3. Fitch Ratings ranks the country BB.

Disclosure: Author does not own any of the stocks discussed here.

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