Capital market set for stronger performance

Capital market set for stronger performance

JAKARTA (JP): Stock exchange executives and securities
analysts estimate a more promising outlook for the Indonesian
capital market next year.

They predict that the estimated faster growth in the country's
economy will become the prime mover of the capital market
activities.

Other fundamental factors supporting the expected stronger
growth in securities trading are the planned introduction of a
new capital market law, the modernization of the trading system
and the change in tax treatment.

Tito Sulistio, the president of the over-the-counter (OTC)
stock market, describes the outlook for stock trading activities
as the best in the Indonesian capital market's history.

He said that the improvement in the trading system of the
Jakarta Stock Exchange (JSX), such as trading automation,
combined with the launching of a new capital market law, should
significantly improve the confidence of both local and foreign
investors.

"The new trading and legal infrastructures will not only
facilitate trading activities but also should be able to
effectively curb unfair practices.

The government is expected to introduce the capital market law
early next year, during which the JSX is expected to launch its
trading automation.

He said the recent entry of major securities companies from
the United States, such as Merrill Lynch, will also allow wider
financial access to the local capital market.

Tax

The introduction of a new tax law in January, which will also
replace the capital gain tax with a withholding system, is also
expected to serve as an important facilitator of the capital
market.

Investors are expected to pay less tax under the new system,
which will be based on transaction value rather than on capital
gains as imposed at present.

"The only threat is the upward trend in interest rates," he
said here yesterday.

Tito, a former president of a securities company, said that
the impact of the estimated rise in the interest rates should be
minimal as the government's stronger commitment to curbing
inflationary pressure can be expected to result in lower interest
rates.

If the government can check the inflation rate at eight
percent to 10 percent, the impact of the rise in the interest
rates in the United States will remain under control, he said.

Securities analysts estimate that there will be another rise
in the U.S. interest rates in the first quarter of next year, but
that the upward trend will ease during the rest of the year.

"That means that the impact of the rise in the U.S interest
rates will not be so significant in relation to the rise in
domestic interest rates," a securities analyst said.

He warned that stronger impact could come from internal
factors, such as the possible overheating of the Indonesian
economy.

"If the economy is overheating, the central bank will
encourage rises in interest rates to curb the inflationary
pressure," he added.

Tito estimates that a rise in the interest rates to 17 percent
per annum would be endurable.

"What we are really afraid of is interest rates reaching above
18 percent per annum, a level which could disrupt the capital
market," he said.

Basjiruddin Sjarida, the president of the Surabaya Stock
Exchange (SSE), describes 1995 as an important year of momentum
for the Indonesian capital market.

He said foreign fund managers, which invested around US$0.5
billion in Indonesia last year, are expected to further increase
their investments on the local markets as the impact of the new
trading facilities.

The listing of 38 companies in the January-November period
raised the capitalization on the JSX by 50 percent to Rp 105.19
trillion ($48.9 billion) from Rp 69.29 trillion as of December
last year.

However, the JSX Composite Index dropped by over 18 percent in
the January-November period, or by over 20 percent, up to last
week on the impact of the decline in the foreign presence.

Foreign investors, the dominant factor in trading activities,
significantly reduced their portfolio investment weights this
year as a consequence of the persistent rises in U.S. interest
rates. (hen)