Indonesian bourse unlikely to rebound in 3 - 6 months due to oil cost, inflation

As one of Asia's best performing markets in 2007, the Indonesian bourse has so far this year been struggling to revisit its record peak, but analysts believe it is not going to happen within the next three to six months.

Soaring oil prices, which forced the government to allow local fuel products prices to rise in May to reduce the state's fuel subsidy burden, will continue to be the biggest drag on the market's performance in the near term, they said.

The only way they see the market staging a recovery is on the back of a retreat in crude oil to about $120 barrel or when a new government takes over after next year's election to set a clearer policy on fuel price hikes.

Following the fuel price increase in May, analysts began to fear the possibility of consumer inflation sizzling above 10 percent by year-end, which is likely to prompt the central bank, Bank Indonesia (BI), to hike its key interest rate to about 9 percent.

"I think the third quarter is going to be quite tough because the central bank may raise interest rates further," said David Chang, an analyst at UOB Kay Hian.

Given that oil prices are now approaching $150 a barrel, "the stock market outlook is not so good," he said.

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