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Analysts are at odds over the intermediate-term outlook for Indonesian stocks, with some forecasting a retreat and others a continuation of the bull run.

Tim Condon, head of financial markets research at ING Singapore, said the bears could take control over the next five months, as investors opt to sell on concerns of higher inflation.

He said inflation was poised to increase in line with rising commodity prices and consumer purchasing power as the global recovery picks up steam.

“I think investors will be cautious in the face of an acceleration in inflation. I’m turning bearish on the rupiah and the Jakarta Composite Index,” he said, adding that he had been among the bulls until recently.

He said he believed the JCI would face selling pressure in the fourth quarter that could extend into the first quarter of next year.

Despite his pessimism on the mid-term outlook, however, Condon said the local gauge was well-placed to resume its strong performance in early 2010, after investors become comfortable with the higher inflationary outlook.

With a more bullish view, Kenny Soejatman, director of equity investment at PT Mandiri Manajemen Investasi, said the JCI could hit 2,750 by year-end, up from about 2,500 last week.

That would see the JCI rise another 9.3 percent this year, as gains in the rupiah help reduce the cost of overseas debt and continue to make domestic assets attractive, he said.

Interest-rate-sensitive stocks were particularly well-poised to gain, as a stronger rupiah would once again widen the central bank’s scope to reduce rates, Kenny said. Gains in the rupiah would provide “policy makers with more tools to achieve economic growth,” he added.

But he also warned that “investors may offload stocks and rupiah if the local currency rises too fast and breaches the 9,000 level against the dollar.”

Stocks and the rupiah gained earlier this year as the central bank cut interest rates to bolster spending, and President Susilo Bambang Yudhoyono’s re-election in July raised optimism that he would keep pro-growth policies.

The benchmark JCI has gained 80 percent this year, making it the third-best performer in Asia. The rupiah has advanced 16 percent, the best among the 10 most-actively traded Asian currencies.

Robert Scholten, president director of PT ING Securities Indonesia, said the stock market had proved resilient in the global economic crisis, and the recent election results had been well received by investors.

Despite the positives, he said most investors were still adopting a wait-and-see approach and were refraining from making major decisions until the new cabinet lineup was announced.