Measures needed to boost equity investment<\/p>\n
JAKARTA (JP): A survey conducted by the Association of
\nIndonesian Securities Companies reveals that a number of measures
\nare needed to make equity investment more attractive than fixed-
\nincome investment.<\/p>\n
In a report on the results of a survey, the association stated
\nthat Indonesia's high interest rate level, now standing among the
\nhighest in the Asia-Pacific region, is partly responsible for the
\nslow movement of the Jakarta Stock Exchange's (JSX) stock index
\nduring the last five years. The JSX's composite index stood at
\n493.24 last Friday, compared with 406.49 at the end of 1989.<\/p>\n
Indonesia's interest rates during the 1989 to 1994 period
\naveraged at 20.7 percent per annum, compared with 19.7 percent in
\nthe Philippines, 16.3 percent in India, 12.8 percent in Thailand,
\n8.4 percent in Malaysia, 8 percent in Hong Kong and 6.4 percent
\nin Singapore.<\/p>\n
In Indonesia, the report stated, the returns from equity
\ninvestment within the 1989 to 1994 period was equal with 0.15
\npercent of bond and fixed-income deposit investment.<\/p>\n
\"It will be difficult to convince domestic investors that
\nwithin the five year period, they only brought a total of 16
\npercent returns in equity investment, while they could get up to
\n100 percent in no-risk time deposits,\" the report said.<\/p>\n
According to the report, as the stock composite index and
\ninterest rates move inversely, it is necessary to keep interest
\nrates low. Keeping interest rates low is fundamental for a
\nsustainable bullish period of any stock exchange, which, in turn,
\nwould attract domestic investors to enter equity investment.<\/p>\n
With only 150,000 domestic investors or 0.8 percent of
\nIndonesia's total population, the country's stock exchanges still
\nlag behind those at other emerging markets.<\/p>\n
Malaysia, for instance, has some four million domestic
\ninvestors; India records 40 million domestic investors; and
\nChina, whose exchanges are relatively younger than Indonesia's,
\nbooks 11 million investors; while almost 50 percent of
\nSingapore's populations are recorded as stock investors.<\/p>\n
Transactions<\/p>\n
In terms of stock transactions, domestic investors control
\nonly less than 30 percent of overall transactions, while the rest
\nare handled by foreign investors. The trend shows that the share
\nof domestic investors is very limited.<\/p>\n
\"It's a fundamental problem for Indonesia's stock exchanges,\"
\nthe report stated.<\/p>\n
Indonesia currently has two stock markets, the JSX in Jakarta
\nand the Surabaya Stock Exchange (SSE) in East Java.<\/p>\n
The survey, which was conducted last July, involved 53 local
\nsecurities firms, or 31 percent of total securities companies in
\nthe country. The results of the survey were presented at a
\ngathering of securities firms, the managements of both local
\nstock markets and the Capital Market Supervisory Agency (Bapepam)
\nat Niaga Tower last week.<\/p>\n
The report on the results of the survey suggested that to
\nstimulate domestic investors, the government needs to consider
\ngiving discount prices to domestic investors when any state
\ncompany has an initial public offering at local markets.<\/p>\n
The report indicated that giving such discount prices will be
\nthe most effective way to increase the number of domestic
\ninvestors entering stock markets.<\/p>\n
When Singapore Telecom had initial share offering, for
\ninstance, it gave a discount price to Singapore's domestic
\ninvestors. As a result, the number of Singapore's domestic
\ninvestors increased dramatically from 300,000 to 1.4 million
\novernight.<\/p>\n
\"Besides, such discount pricing can serve an effective tool to
\nmaterialize one of a stock exchanges' missions, that is carrying
\nout income distribution,\" the report said.<\/p>\n
Under Indonesian regulations, any company which conducts cross
\nlistings at foreign and domestic markets are not allowed to give
\ndiscount prices.<\/p>\n
Review<\/p>\n
However, Bapepam's chairman Bacelius Ruru promised last week
\nto review rulings which prohibit dual-listed companies to
\ndiscount prices.<\/p>\n
The report also suggested that to stimulate the domestic
\nmarket, the government needs to reactivate banks as institutional
\ninvestors on stock markets, give pension funds more room to
\ninvest their money in equity, legalize margin trading and open-
\nended mutual funds.<\/p>\n
The report said banks contributed significantly to the
\nemergence of the JSX at the end of the 1980s, before they were
\nprohibited from investing in stocks in 1991, under the February
\n1991 deregulatory measures.<\/p>\n
In addition to banks, the country's pension funds are also
\nvery potential institutional investors. They are projected to
\ncollect a total fund of Rp 50 trillion (US$22 billion) within the
\nnext five years.<\/p>\n
\"If just 10 percent of the funds are invested in stocks, it
\nwill give a substantial contribution to the performance of
\ndomestic investors,\" the report read, adding that currently total
\nfree-floating shares at the JSX are equal with Rp 25 trillion or
\n20 percent of its total market capitalization. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/measures-needed-to-boost-equity-investment-1447893297",
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