Efficient stock mart key to cut in interest rates<\/p>\n
JAKARTA (JP): High interest rates in Indonesia have made the
\nstock market less attractive for domestic pension fund
\ninvestments but an efficient stock market can help cut the rates,
\nan analyst said.<\/p>\n
The president of PT Makindo, Gunawan Yusuf, told a seminar
\nyesterday that once the stock market becomes efficient, meaning
\nthat the fundamentals of listed companies strengthen and their
\nshares perform accordingly, those companies could force banks to
\nreduce interest rates.<\/p>\n
\"Sometimes it is the banks which offer profitable companies
\ncredit. Under these circumstances, the borrower is in a strong
\nposition to ask for a lower interest rate,\" Gunawan said.<\/p>\n
As a consequence, banks will lower their interest rates, an
\naction which could eventually force down their time deposit
\nrates, thereby making them less attractive than other
\ninstruments, he added.<\/p>\n
An efficient stock market will also make it a more attractive
\nsource of funds. This situation will tighten competition between
\nbanks and the stock market and will also help curb any rise in
\ninterest rates.<\/p>\n
Gunawan cited an example that before 1990, the interest rates
\nin Malaysia fluctuated at a range of 14 to 16 percent. But when
\nthe stock exchange became more efficient in 1990, the interest
\nrate dropped to a level of 9 to 10 percent.<\/p>\n
\"However, it is not the right time for Indonesia as the
\ngovernment still needs high interest rates to prevent the economy
\nfrom overheating,\" he conceded.<\/p>\n
Pension fund<\/p>\n
Speaking on how to lure pension funds to the stock market,
\nGunawan said that one way to compensate for high and fixed
\nreturns offered by banks is by changing the investment strategy
\nof pension funds.<\/p>\n
\"Fund managers are required not only to maximize total return
\nbut also to protect the pension funds from losses,\" he said.<\/p>\n
He said that there should be a contract between pension funds
\nand fund managers which include an item about capital reserve
\nfunds.<\/p>\n
The capital reserve fund is a guarantee that fund managers
\nreturn the total investment of a pension fund after a certain
\nperiod in case a stock portfolio gives no return.<\/p>\n
Gunawan said that fund managers are prohibited from
\nguaranteeing the return on investments to third parties,
\nincluding pension funds.<\/p>\n
\"Therefore, we need a capital reserve fund to make sure that
\nat least pension funds do not lose money in down markets,\"
\nGunawan added.<\/p>\n
He said that if pension funds want to invest in the stock
\nmarket they have to do it on the basis of a long-term strategy.<\/p>\n
\"Based on our past experiences, investing in the stock market
\nlong term (at least three years) gives a return of about 22 to 23
\npercent per annum compared to that of a time deposit which yields
\nonly 18 to 19 percent,\" Gunawan noted.<\/p>\n
Gunawan said that pension fund investments in the stock market
\nare still very small.<\/p>\n
Indonesia has approximately 400 pension funds with total
\nassets of Rp 17 trillion at the end of 1995. (08)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/efficient-stock-mart-key-to-cut-in-interest-rates-1447893297",
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"sponsor_url": "https:\/\/okusiassociates.com"
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