Capital market fails to attract investors: Expert

NUSA DUA, Bali (JP): Management problems and regulations on pension funds and insurance companies have discouraged institutional investors from entering the capital market, securities analysts said yesterday.

Speaking at a seminar here on local investors' role in the capital market, PT Danareksa president Glenn M.S. Yusuf cited a government regulation limiting pension funds' investment in a listed company to a maximum 10 percent of their investment portfolios.

He said the rules requiring pension funds to report their investment performances yearly prompted fund managers to focus on secured earnings rather than long-term investments such as stocks.

Glenn argued that institutional investors should look for long-term investments, and that their performances should not be mainly assessed on the bottom lines of their annual financial reports.

He urged pension funds and insurance companies to employ capable fund managers to manage their funds because investing in the capital market required sound securities analysis.

"Most of them, particularly the pension funds, rely on their own staff to manage their stock investments funds. They actually need fund managers to advise them on their stock investments," he said.

He added that incompetence had caused many institutional investors to lose in the market.

Discussions at the two-day seminar showed that many pension funds bought shares, including those of companies owned by their founding shareholders. And when share prices peaked, they were too slow to sell. Then after share prices fell below their initial public offering (IPO) price, they tried to sell.

Incentives

B. Munir Sjamsoeddin, the president of PT Reasuransi Umum Indonesia, questioned the reliability of information contained in IPO prospectuses.

"Who could guarantee the truth of the information and figures in a prospectus?"

He said issuers needed to give incentives and pledge guaranteed incomes for investors.

Several participants at the Seminar cited Bank Umum Servitia as a company offering good incentives to its IPO subscribers.

The bank, which held a public expose early this month, promised to give a fixed dividend at 21 percent of its IPO price for the next three years.

He urged share-issuers to guarantee they would buy their shares back if prices fell below their IPO price within two years.

"Singapore has introduced such a guarantee scheme to encourage institutional investors. I think we should also apply it here," he said.

But Yannes Naibaho, the president of PT UsahaBersama Sekuritas, said this guarantee scheme could not be implememnted here.

"An equity is an equity. Asking for such a guarantee is like trying to change the equity into a fixed-income debt instrument," he said, adding that it was against market mechanisms.

He conceded the request may have arisen because most institutional investors were still learning about share trading.

"I think the problem here is how we create effective instruments to encourage them to invest more in the capital market," he said.

He said if they wanted to avoid risks they could buy convertible bonds.

He suggested that pension funds and insurance companies employ professional fund managers to handle their equity investments.

The chairman of the Association of Indonesian Listed Companies, Rosano Barack, admitted that a lack of market liquidity was one factor discouraging institutional investors.

"This is because we only have about 25 good shares. The rest have performed poorly and are rarely traded," he said, stressing that listed companies should work harder to improve their performance.

But Rosano shared Naibaho's view that giving guaranteed income to stock investors went against market mechanisms: "I don't think there is a single stock exchange in the world which guarantees a fixed income for stock investors."

Only about 500,000 locals invest in the capital market.

About 10 percent of pension funds' and insurance companies' estimated US$13.4 billion in investment funds is invested in stocks; about 8 percent is invested in bonds and the rest as bank deposits. (bnt)