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)