Investors hail RI spending cuts<\/p>\n
LONDON (Reuter): Foreign investors welcome big spending cuts
\nby Indonesia but remain wary of the stock market on fears of weak
\nearnings growth and riots in the east of the country.<\/p>\n
"It's good news. But it's too early to talk of a return (to
\nIndonesian stocks)," Ashok Shah, fund manager at Old Mutual Fund
\nManagers in London, said Tuesday.<\/p>\n
"Until we can see how poorly- or well-managed companies have
\nbeen in this pretty atrocious climate it is premature to talk
\nabout a return of real investment."<\/p>\n
The government plans to postpone projects worth 39 trillion
\nrupiah (US$13.22 billion), including a 95-km (60-mile) bridge
\nlinking Sumatra to peninsular Malaysia, until the region's
\nfinancial crisis abates.<\/p>\n
Officials said the move should slash the budget shortfall and
\nhelp keep the current account deficit at three percent of gross
\ndomestic product (GDP) for the next two years, heading off
\nspeculative pressure on the rupiah.<\/p>\n
Shah said the decision, which parallels similar cuts in
\nMalaysia, was logical in the current environment, although
\nIndonesia's projects had sounder fundamentals than those in
\nMalaysia.<\/p>\n
But until investors saw concrete evidence of high interest
\nrates coming down, offering relief to hard-pressed corporates,
\nShah and other fund managers said they would remain cautious.<\/p>\n
"It will help to stabilize the market but I don't think we are
\nout of the woods," said Peter Robson, fund manager at John
\nGovett.<\/p>\n
"While I don't see the currency weakening much further, it is
\ngoing to take real evidence of a turnaround in the current
\naccount before we see interest rates fall from their structurally
\nhigh levels. I wouldn't be jumping into the market just yet."<\/p>\n
One-year Indonesian interbank rates currently stand around 20
\npercent with one-month money around 28.50 percent.<\/p>\n
Another London-based fund manager said the equity market had
\nyet to fully digest the impact of the currency turmoil and high
\nrates which would punish future company earnings severely.<\/p>\n
"Both from a top-down and bottom-up point of view the earnings
\n(forecasts) which are in the market now are significantly too
\nhigh," he said.<\/p>\n
Analysts added that the positive impact of the spending curbs
\nhad been offset by other negative factors, in particular news of
\nriots in eastern Indonesia and further market weakness in the
\nsoutheast Asian region.<\/p>\n
Local markets were battered by the riots, retracing early
\ngains made in anticipation of the spending cutbacks announcement
\nto end down 2.9 percent on the day.<\/p>\n
Steve Jennions, emerging market analyst at Credit Agricole
\nIndosuez, took a more upbeat longer-term view, arguing the
\nmeasures would help an eventual recovery in the rupiah, and hence
\nforeign investor sentiment.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/investors-hail-ri-spending-cuts-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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