Even long-term foreign funds wary of Indonesia
Even long-term foreign funds wary of Indonesia
LONDON (Reuters): There is no big pull-out of money yet, but even foreign investors not normally shy of high risk are sitting on their hands when it comes to Indonesia.
Despite Thursday's well-received budget, a new letter of intent for a three-year program with the International Monetary Fund and strong words of western support, religious unrest has colored the markets' view.
And with an economic team not yet 100 days old, foreign investors doubt President Abdurrahman Wahid's ability to deliver significant timely economic reforms through Indonesia's deep thicket of political problems.
"The West is making supportive noises, as it does...but Indonesia's task in a very turbulent environment is to settle its problems in a democratic way that makes for a lasting solution," Old Mutual fund manager Andrew Salton said.
Old Mutual has a neutral weighting on Indonesian equities, that account for just under two percent of the International Finance Corporation's global emerging market index and, with forecast price/earnings of 13.3 times are viewed as cheap against Asia's 16.8 average.
Yet sectarian violence continues to jeopardize economic recovery in the world's fourth most populous country, and has left local assets trailing other Asian countries even though -- on strictly financial terms -- interest rates are expected to fall through 2000 which would otherwise power ahead share prices.
Stocks, Rupiah
Jakarta stocks rose 50 percent in dollar terms last year on signs of economic and political recovery, but are down nearly ten percent in 2000, while the rupiah currency, which was the region's best performer in 1999, has fallen over 4 percent against the dollar this year.
President Abdurrahman denies the government is in crisis, and says religious violence in the Spice Islands is part of a conspiracy to distract him from reforms unpopular with vested interests.
Yield spreads -- a measure of economic risk -- on the country's benchmark 06 Eurobond are now some 60 basis points tighter at 575 bp than they were in October, prior to the country's first democratic elections.
"Obviously there's realistic caution by investors, and Indonesia's problems aren't going to go away overnight," Banque Paribas' Senior Asia's economist Graham Neilson said.
"But there's a steady current account surplus, the IMF are still involved, corporates have maintained cash flow in adversity and the banks, despite slow progress, have been cleaned out in a way almost unrecognizable from two years ago."
High risk did not deter investors last year from Russian equities, which leapt ahead 85 percent.
Even so, analysts say only investors with long time horizons who bet Indonesia's fundamentals will finally shine through are exposed, and only then in a few stocks that are also listed abroad, such as telecoms operator Indosat.
"There are signs of economic recovery filtering through but there are so many better growth stories elsewhere in the region where politics are not so dominant," HSBC emerging markets strategist Ben Rudd said.
"The country will remain a regional laggard, but then its problems have been so much greater and its reforms slower."