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Indonesia's equity market will likely follow the steadily
rising trend in Asia, with markets in the region having rebounded from
earlier jitters on more stable economic conditions, say analysts from
Switzerland-based investment bank UBS.
Indonesia's stock market may even turn out to be more bullish than
other emerging markets -- with the index breaking through the 2,000
barrier over the course of the year -- as it builds on higher growth
expectations ahead and shakes off recent concerns of capital outflows.
UBS chief economist for Asia Jonathan Anderson said there was little to
worry about in global equity markets as the recent "China threat" -- a
sudden correction last February in Shanghai's overvalued stock market
shook markets worldwide -- had already stabilized.
Neither were there any signs of imminent liquidity tightening, Anderson
said, with UBS predicting the U.S. Fed Fund rate to fall to 4.5 percent
by the end of this year from 5.25 percent at present, and to 4.25
percent in 2008. Rates in Japan and Europe would rise slightly, but
only to 1 and 4.25 percent, respectively.
According to Philip Wyatt, UBS economist for Southeast Asia, a broadly
stable interest rate environment will prevail across Asia, allowing
Indonesia to cut rates further to 8.5 percent by the end of 2007 as
expected, without stoking inflation beyond the 6 to 7 percent level.
He forecast that Indonesia's economy would grow by 6.3 percent this
year -- by contrast to a slight regional and global slowdown -- on
improving consumer demand, investment and exports. On the downside,
investment prospects faced possible risks as a result of failure to
implement policies, while exports could decline slightly on a general
slowdown in the world economy.
Speaking further on market prospects in Asia, Anderson said the
region's markets still had the advantage of lower valuations compared
with those in the U.S., Japanese and European markets.
He also pointed out that UBS's latest market risk survey showed a
rebounding trend, which meant that global investors would retain their
appetites for emerging markets, for the moment at least.
However, Anderson pointed to a number of risk factors, such as the
effects of geopolitical events on commodity prices, including the
standoff between the U.S. and Iran.
Indonesia's metal prices could be affected by a decline in Chinese
demand for steel and aluminum, although its demand for nickel, copper,
tin and zinc would continue apace.
UBS's head of research Indonesia, Joshua Tanja, said that overall
prospects for the local market were good, and that it should reach new
record highs this year as the country's growth and corporate-earnings
prospects decoupled themselves from the expected global slowdown.
The Jakarta Stock Exchange Composite Index rose 22.670 points -- or
1.17 percent -- to set a new record high of 1,963.822 Tuesday, buoyed
by expectations of healthy corporate results and following world market
gains. At one point it even reached an intraday high of 1,963.889.
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