Government Watches Out for China Effect
Thursday, 01 March, 2007 | 16:14 WIB

TEMPO Interactive, Jakarta: The government is guarding against an upheaval in global financial markets affected by the drop in the Shanghai index of 8.8 percent last Tuesday.

This fall on the Chinese stock exchange was the largest within the last ten years since the reformist leader of the Chinese Communist Party Deng Xiaoping died on February 18, 1997.

According to Christine Salim, Research Head at PT Samuel Sekuritas, the decrease of the Shanghai index was caused by the regulations of the Chinese government that will clean up illegal investments.

The maneuver was in line with the improving Yuan currency as the cleaning up of illegal investments was believed to be able to stabilize the Yuan.

“Apparently, the Chinese government does not want to see the Yuan keep improving because of the flow of foreign funds that penetrate the market,” Christine said.

She went on to say that the plan to assess capital gains tax and the threat of high inflation, which might increase interest rates, also helped triggered the drop in the stock index in China.

According to Fauzi Ichsan, an analyst of Standard Chartered Bank, the fall in the global market was affected by Chinese and the US stock exchanges.

The Chinese stock Exchange plunged after a rumor was spread that the government would control capital flows and investors' shares.

In addition, the US stock exchange was affected by the less expected economic data, especially on production growth.

“As a result, there was panic on the market,” said Fauzi and global markets responded to China's panic.

The Dow Jones index fell to more than 500 points, which was the worst since 11/9.

European markets were also down with the FTSE 100 of the London Stock Exchange losing 2.3 percent.

The Jakarta stock exchange was also affected by the decrease on global markets.

At the opening of trading, the JSX index dropped by 5.6 percent.

The Rupiah also decreased by 1.15 percent to the level of Rp9,195 against the US dollar, which was the lowest since November of last year.

Agus Supriyanto | Agoeng W | Kurniasih | Muchtar W (PDAT)