Tue, 02 Aug 1994

Foreign analyst upbeat about local stock trading

JAKARTA (JP): Gavin Graham, a senior Hong Kong-based investment officer of Citibank N.A. of the United States expressed an upbeat outlook yesterday about the Indonesian capital market despite the persistent drops in share prices.

"I am optimistic that the buying trend will improve again despite the recent increase in the domestic interest rates," he told The Jakarta Post during the break of a seminar on the outlook for Asian markets towards the APEC (Asia Pacific Economic Cooperation) era.

Graham, the main speaker at the seminar, acknowledged that the persistent falls in share prices on the Indonesian markets are partly caused by the rise in U.S. interest rates, which has also caused an increase in the domestic rates.

"The rise in the U.S. interest rates has also affected other Asian markets. But I am sure the crisis will end," he said.

He said price drops in Asian markets was not caused by the decline in the economic fundamentals but rather due to the psychological impact of the rise in the U.S. interest rates.

The latest rise in the U.S. Federal Reserve's interest rates in May has caused a slight rise in the deposit rates in Indonesia to between 10 and 10.5 percent per annum from 9.5 percent and 10 percent in May. But the deposit rates are still 1.5 percentage points lower than those offered in the period between last October and January despite the increase.

Graham said Indonesian stock exchanges and other Asian markets will still give investors higher profits than those offered by bank deposits even though there would be another rise in interest rates.

Reduction

Foreign fund managers have significantly reduced their portfolio investments in Asian markets to benefit the rise in the U.S. interest rates. The foreigners' pullout has also significantly affected the Indonesian stock exchanges where foreigners are still the dominant factor in trading activities.

"Many local investors made a cut-loss trading due to selling pressure from the foreign investors. This further pushed down stock prices," he said.

He, however, believed that the sluggish market condition would improve again as foreign investors have mostly gained more confidence that the favorable improvement of the U.S. economy would prevent the Federal Reserve from introducing another unpopular monetary approach.

"The Jakarta Stock Exchange (JSX) Composite Index will reach 500 points again before the end of this year and see another increase to 550 points early next year and to 600 points in the first half of next year," he said.

He based his optimistic view on the improvement of the country's macroeconomic conditions and corporate earnings in the first half of this year.

Graham said that the introduction of a capital market law and the improvement of trading infrastructures next year would provide important incentives in revitalizing the stock trading activities in the country.

The JSX index, which hit its historical high level of 681.94 in April 1990, suffered a sharp decline to as low as 300 points in the following two years. The market improved again in early 1993 and in January this year, when the index managed to reach 612.88 points.

The index had since continued declining to below 451 points last week even though the level of deposit rates offered by local banks are still lower than those offered in January. (hen)