Equity investment shines as bonds, mutual funds collapse
Equity investment shines as bonds, mutual funds collapse
Rendi A. Witular
The Jakarta Post/Jakarta
The Jakarta stock market is in for another shining year this
year, hitting record highs along the way, driven in part by the
influx of investors from the bond and mutual fund markets as a
result of their declining yield due to various economic factors
at home and overseas.
With a high interest rate environment in the global market and
at home amid worrisome inflationary pressures, investment
instruments which boast yields from interest-rate spreads are no
longer eagerly hunted by investors.
Trading in the equity market started to flourish early in the
year, on confidence over the new administration under President
Susilo Bambang Yudhoyono, which took over in October, 2004.
The market started to get a boost from the external front when
in the first quarter of this year, investors began to looking at
equity investment or dollar-denominated assets following a steady
increase in the interest rate in the United States.
Bank Indonesia later tracked down the trend and gradually
raised its key interest rates, undermining demands for fixed-
income investments, such as bonds and mutual funds, with most of
the investors eventually turning to the equity or money market
which offer higher yields.
The jitters were also exacerbated by the unstable monetary
condition resulting from higher global oil prices which put the
country's fiscal balance under serious threat.
The impact was apparent on the mutual fund market in March
when investors started to suffer from a decline in their
investable funds, especially in fixed-income investment
instruments, which is the underlying instrument in the industry.
Fixed income instruments account for the lion's share of the
country's mutual fund industry composition.
Institutional investors, who are fully familiar with the
risks, began withdrawing their investments and shifting them to
either the more lucrative equity or money markets.
This was not the case for most retail investors, however, who
later blamed their fund managers for not adequately informing
them of the dangers lurking ahead. Most of them had to contend
with the fact that -- in contrast to what their fund managers had
told them to the effect that mutual funds were more or less like
bank deposits: risk-free investments with fairly good returns --
their investments were in fact declining rapidly in value.
In just six months, the level of investable funds in the
industry has plunged by some 45 percent, while net asset value
(NAV) has nose-dived by 60 percent.
The amount of investable funds in the industry had declined to
less than Rp 65 trillion (US$6.56 billion) from Rp 118 trillion
in March as of the first week of September, according to the
Capital Market Supervisory Agency (Bapepam).
Meanwhile, the industry's NAV dropped to Rp 46 trillion in the
first week of September from Rp 105 trillion in March.
During the apparent collapse in the bond and mutual fund
market, trading in the equity market continued to flourish as it
booked another record high in history when the Jakarta Composite
Index closed at 1,192.203 on Aug. 3.
Until that date, the Index had increased by close to 20
percent from 1,000.88 points booked in the first day trading of
the year.
Still, in regulatory terms, the robust trading performance has
not been supported by sufficient incentives as well as favorable
policy to lure more private companies to "go public" and make the
capital market among the main financing resources in the country.
As such it makes it difficult for the local bourse to become a
major source of financing, outside of banks and other investment
tools, said chairman of the Indonesian Publicly Listed Companies
Association (AEI), Airlangga Hartarto.
"The government is giving the same treatment to publicly
listed firms as it is to those that are not listed. This
discourages more firms from improving their corporate governance
by going public," he said.
The absence of incentives -- with tax-break facilities the
most sought after -- has led the Jakarta Stock Exchange (JSX) to
lower its ambitious target for the registration of new listed
companies this year from 30 to just 15.
There were eight new companies listed on the JSX from January
to September, with another seven expected to follow suit.
At present, there are 337 companies listed with the bourse.
There are also concerns that several of the existing listed
companies will buy back their shares from the public and become
private companies, in part because being a listed company means
more paperwork and costs.
In order to attract non-listed companies to going public, AEI
is suggesting that the government provide fiscal incentives in
the form of a tax clearance facility and an income tax break
ranging from 5 percent to 10 percent.
The association is also demanding the government allow public
accountants to audit the taxes of the publicly listed companies
without having to go through another audit by the Directorate
General of Taxation. AEI also appeals to the government to drop
plans to tax mutual fund proceeds, as included in the proposed
amendment of the tax laws which are currently being deliberated
upon by the House of Representatives.
In the regulation sector, AEI urges Bapepam to reduce an
effective approval for an initial public offering (IPO) and for
other forms of capital-raising corporate actions from 45 days
currently to 30 days.
Eyebox
Largest counter on the JSX
(As of Dec. 12)
Company Percentage
1. PT Telekomunikasi Indonesia 16.39%
2. PT Astra International 5.62%
3. Bank Central Asia 5.56%
4. Bank Rakyat Indonesia 4.74%
5. PT Unilever Indonesia 4.36%
6. Bank Mandiri Persero 4.34%
7. PT Perusahaan Gas Negara 4.12%
8. PT Indosat 4.09%
9. PT Gudang Garam 2.83%
10. Bank Danamon Indonesia 2.73%
11. Bank Negara Indonesia 2.36%
12. Bumi Resources 2.00%
13. PT International Nickel Indonesia 1.82%
14. PT Indocement Tunggal Prakarsa 1.77%
15. PT Medco Energi Internasional 1.56%
Source: Bloomberg