Benchmark investors remain unattracted to Indonesian stock

Rendi A. Witular, The Jakarta Post, Jakarta

Despite a giant leap recorded by the local stock market since early this year, global benchmark investors remain reluctant and cautious to pour their money into the market due to a variety of nonfinancial factors.

Stock analyst David Ferdinandus of Malaysian-based CIMB Securities said that the recent rally in the stock market here was driven mainly by small, regional investors who already had a broad picture of overall conditions in Indonesia.

"The rally cannot be simply portrayed as growing confidence among investors with regard to the country's situation: It is just a group of small regional investors who are trying their luck to earn some gains," David told The Jakarta Post on Sunday.

He said that most of the regional investors were from Singapore, Malaysia and Hong Kong.

Investors here are mostly seeking short-term gains, since Indonesia is still categorized as an emerging equity market that can dish out higher gains compared with those of the more established markets.

David explained that the country's unfavorable political and security condition, as well as the lack of investor protection, capital market openness, financial transparency and labor standards, had dissuaded larger global investors from coming in.

The Jakarta Stock Composite Index has surged by more than 15 percent in the past four months alone, from 704.498 on Jan. 2 to an all-time high of 815.444 on Friday, up 38.872 points from the previous Friday.

Average daily volume last week was 2.01 billion shares worth Rp 1.18 trillion (US$137 million) compared with 1.74 billion shares worth Rp 730.89 billion the previous week.

The government has often stated that the rally in the stock market has served as an indicator of investor confidence in the country's economy. Several government officials have also used the rise in the stock index as evidence of the current administration's achievements in the economics area.

David said that the local stock market could well serve as a reflection of investor confidence if global benchmark investors had included the bourse on their list of permissible investment markets.

Indeed, the country's stock market does not yet feature on the investment radar of benchmark investors, as reflected in an April 19 report issued by California Public Employees' Retirement System (Calpers), the largest pension fund in the U.S.

In the report, which was produced by U.S. investment consultant Wilshire Associates Inc., Calpers still listed Indonesia as a noninvestable emerging equity market, along with Morocco, Sri Lanka, Thailand, Colombia, China, Egypt, Pakistan, Russia and Venezuela.

Calpers, which manages some US$166 billion-worth of funds, halted investment in Indonesia and Thailand in February 2002, citing a lack of capital market openness, political instability and poor labor standards.

On the company's current list of investable markets are Malaysia, the Philippines, South Korea, Taiwan, India, Poland, South Africa, Turkey, Argentina, Brazil, Chile, the Czech Republic, Hungary, Israel, Mexico and Jordan.

Calpers, which invests around $2 billion in emerging stock markets, is known as a benchmark for global investors when seeking to invest in an emerging equity market.