Insurance firms asked to invest more in stocks

Insurance firms asked to invest more in stocks

JAKARTA (JP): The government called yesterday on insurance
firms and pension funds, especially those which are publicly
listed and affiliated to listed firms, to invest more in equity
and bonds to strengthen local stock markets.

Speaking at a capital market conference here yesterday,
Director General of Financial Institutions Bambang Subianto
expressed his concern that publicly listed insurers and those
affiliated to listed firms invested less in stocks and bonds than
the average industry.

"If listed insurers and those affiliated to listed firms are
reluctant to invest in stocks and bonds, how can we drive other
institutional investors to enter equity investment?" Bambang
asked.

According to official data, the country's insurance firms
raised Rp 13.67 trillion (US$4.7 billion) in funds last year,
50.8 percent of which was invested in time deposits and
certificate of deposits.

They invested 5.8 percent of the funds or Rp 796 billion in
shares and 4.3 percent or Rp 588 billion in bonds.

Meanwhile, listed insurers and those affiliated to listed
firms, which raised Rp 3.2 trillion last year, invested 4.5
percent of the funds in shares and only 0.8 percent in bonds.

"They should have given an example to other insurance firms to
invest more in stocks rather than in time deposits or other fixed
income instruments," Bambang said.

While listed insurers invest less in stocks, in-house pension
funds established by listed firms for their employees have
invested quite heavily in equity investment.

Last year, they invested 12.1 percent of their total funds of
Rp 2.25 trillion in stocks and 6.9 percent in bonds. Their
investment in deposits accounted for 35.6 percent of their total
funds.

Superannuation funds established by listed firms and open to
everyone have not yet invested in stocks. But they invested 10
percent of their funds of Rp 33.9 billion in bonds.

Bambang said investment managers at insurance firms and
pension funds still had a negative impression about investing in
local stock markets.

"They do not yet feel comfortable with local equity
investment. This is essentially related to market liquidity,
volatility and yield," Bambang said.

"It becomes the duty of everyone in the capital market to
ensure institutional investors that investing in stocks is safe
and gives higher returns," he added.

Bambang also called on listed firms -- almost 70 percent of
which currently do not have pension funds for their employees --
to establish such funds or include their employees in the
existing pension funds run by financial institutions open to
everyone.

"If these companies establish their own pension funds, there
would be a huge amount of money available for investment and more
funds could be invested in stock markets," Bambang said.

Chairman of the Capital Market Supervisory Agency, I Putu Gede
Ary Suta, said local institutional investors like insurance firms
and pension funds had a vital role in developing local capital
markets.

But a strong capital market should also have a strong domestic
retail investor base, Putu said.

In 1990, Putu noted, there were less than 100,000 registered
shareholders of public firms. Today, the number is more than two
million.

"Still, investors in the capital market only make up 1 percent
of the population," Putu said. "Increasing domestic investors is
a central goal in our agenda for action."

To attract more local investors, Putu said his party would
continue to promote open-end mutual funds as the product of
choice to develop the retail investment market.

The agency will soon issue rules requiring local stock
exchanges to clarify terms and conditions of exchange contracts
to improve trading activities.

It will also issue rules requiring securities firms to
promptly segregate customer assets and quickly bring securities
positions under their direct control so that securities in
custody with broker-dealers were safe and not used improperly.

In a bid to guarantee prompt settlement of exchange contracts
and reduce settlement risks, the agency has just licensed a new
Clearing Guarantee Corporation, which is expected to become
operational by the end of the year.

Putu said the agency would soon license a new Central
Securities Depository, to be owned and managed by custodian
banks, major securities houses and the stock exchanges.

This new institution is expected to initiate book entry
settlement or scriptless trading by June 1998.

"Book entry settlement will greatly reduce transaction costs
and spur local retail market development," Putu said. (rid)