Investors queasy over East Timor<\/p>\n
LONDON (Reuters): International investors are rarely queasy
\nwhen it comes to such niceties as human rights but the violence
\nsurrounding East Timor's independence vote last week has left
\nsome distinctly cool towards Indonesia.<\/p>\n
After booking huge first half profits, many fund managers said
\non Friday they were now happy to wait out growing uncertainty
\nsurrounding not only the vote but also a high level banking
\nscandal and November's presidential elections.<\/p>\n
"Indonesia's not making that much sense at the moment and East
\nTimor is not helping," said Richard Muckart, head of emerging
\nmarkets at Edinburgh Fund Managers which has about US$800 million
\ninvested in the region and has been underweight on Indonesia
\nsince June.<\/p>\n
"The long term prospects may be good but if I had spare money
\ntoday would I put it in Indonesia? No, I wouldn't."<\/p>\n
Asian investors are no strangers to violence in the region and
\nit takes more than protesting Korean students or spilt blood in
\nIndonesia's outlying islands to scare them away.<\/p>\n
Jakarta's stock market, up some 60 percent since January as
\nlocal interest rates have tumbled and Asia's recovery has
\naccelerated, is still among the world's five best performers this
\nyear -- despite a 20 percent slump since its June 21 peak.<\/p>\n
But growing international opprobrium over the violence in the
\nEast Timor referendum has compounded longer-standing worries of
\npolitical instability to drive markets lower.<\/p>\n
The rupiah currency has steadily weakened from 6,550 to the
\ndollar at the end of June to just short of 8,000 in September.<\/p>\n
A political scandal surrounding a $70 million payment made by
\nBank Bali to an official of the ruling Golkar Party may scupper
\ndesperately needed loans from the International Monetary Fund and
\nthe World Bank.<\/p>\n
And investors are increasingly concerned about the outcome of
\nNovember's presidential polls after a June 7 parliamentary vote
\n-- the first democratic election in over 40 years -- left Golkar
\ncoming in second.<\/p>\n
"The political risk rating is currently on an upturn and its
\nexpansion has seen a compression of asset values," said Ashok
\nShah, fund manager at Old Mutual Asset Management in London, who
\nhas a neutral Indonesia weighting in his portfolio.<\/p>\n
"Even so, there may be some good news still to come -- if the
\narmy decides to behave itself, if the politicians decide to
\nchange chairs as they're supposed to and if full due diligence is
\nbrought to bear on the Bank Bali scandal," he added.<\/p>\n
Over the long term, markets believe sound policies will
\nprevail -- Indonesia is simply too desperate for foreign funds to
\nrebuild its shattered banking system to ignore international
\nopinion.<\/p>\n
That view, and Indonesia's economic potential, is reflected in
\nthe yield spread over U.S. Treasuries of its benchmark 06
\nEurobond, a measure of sovereign risk, that has narrowed from
\n1800 basis points at the height of last year's crisis to 900 bp
\nin May and just 600 bp now -- tighter than Brazil.<\/p>\n
Even so, as Australian Prime Minister John Howard condemned on
\nFriday Indonesia's inaction to quell East Timorese violence, aid
\nagencies said they were preparing for an emergency situation
\nafter the vote's results on Saturday and that between 50,000 and
\n100,000 people might flee the former Portuguese colony.<\/p>\n
"The market may think sanity will prevail. But we'd only want
\nto go overweight either if there was a big stock market sell-off
\nor if people stopped being killed," Shah said.<\/p>",
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