Indonesia's JCI to trade from 1625 to 1800 towards end of 2008

Crude oil gains ~50% YTD, partial removal of subsidies in Indonesia, high inflation rate, dropping commodities prices. So, what are the real factors that makes Indonesia's JCI to trade between 1625-1800 which is a 18%-26% drop to current level of ~2200 ?

Want to know the answer? "ALL" is the answer as it chains from one even to another before we finally see the effect on the Jakarta Composite Index (JCI) index.

Let me break it down one by one why this is so:
1. Crude oil gains ~50% YTD has put tremendous budget constraints on the budget of Indonesia government to run its economy. The government has finally decided to pass some of the higher price to its consumers. This has created high inflation environment in Indonesia.
2. Partial removal of subsidies was caused by the high oil price described in previous point. The key point is the "partial" where only a percentage of the subsidies is removed, not everything.
3. High inflation rate, in general, erodes corporate profits as prices are higher and thus costs of production. The end result of this is lower profits which translates to lower stock prices.
4. Dropping of commodities prices has not helped lower inflation. It reduces earnings of the commodity-producer-heavy index and therefore eroding profits and thus share prices. Dropping prices also does not help lower inflation either: gasoline costs only Rp. 6,000 per litre in Indonesia (which is equivalent to US 65 cents or SG 92 cents) even after the partial subsidy removal. Just for comparison, gasoline in Singapore is SGD 2.20 when oil was at record price. Even with oil at USD80, gasoline that costs US 65 cents is still very cheap and therefore still put pressure on government budget, thus high prices is here to stay and thus high inflation.

The figure 1625-1800 is derived from the 5 year chart of the JCI and represents the support level of the bull market trend that has formed since mid-2003.