Investors advised to pull out of local stock market

Investors advised to pull out of local stock market

SEMARANG (JP): Stock market analyst Hasan Zein Machmud advised
investors here on Monday to pull their investments out of the
battered local stock market because of its high risks.

Hasan, former president of the Jakarta Stock Exchange (JSX),
noted that the risks of investing in local stocks now were
greater than the possible yields.

The government has not provided a blanket guarantee for equity
investors, unlike its policy covering bank depositors.

Should an issuer go bankrupt or close down, he said, investors
would have little recourse other than to bear a loss.

"I warn investors to think rationally. Looking at the current
situation, I would pull back from the bourse. So if I had money,
I would not play in the market, especially when there are more
promising sectors."

The local stock market offers few incentives as the economic
crisis continues to pummel corporations.

There is widespread concern that listed firms will continue to
go under.

Such worries are understandable, Hasan said, arguing that most
of the issuers in the local exchange were in trouble.

Many of Indonesia's listed firms often entered foreign
financial markets to gain foreign loans to finance domestic
operations and expansions. The past practice started most of them
in the debtors house at the beginning of the crisis.

"I see there was latah among issuers which considered getting
foreign loans as very prestigious," Hasan said, citing an
Indonesian term for companies which follow a trend in massive
numbers.

Many companies with significant foreign debt have become
technically bankrupt following the rupiah's depreciation against
the dollar by some 70 percent since July last year.

Hasan said the government did the right thing when it created
the Indonesian Debt Restructuring Agency (INDRA) to help private
companies restructure their foreign debts into an eight-year
period, with a three-year grace period.

Nevertheless, Hasan predicted massive corporate bankruptcies
in the future since the current rupiah-dollar exchange rate was
too high for them to repay their debts.

Most of the companies traded on the JSX are technically
insolvent -- meaning their liabilities exceed assets -- yet not
one has been seized by creditors. After twelve months of
inaction, the government has set up commercial courts and trained
special judges to settle claims.

He said between 30 percent and 40 percent of the country's
securities firms may be forced to close down.

The local market has lost almost 50 percent of its value over
the last 12 months. The JSX Composite Index, the bourse's main
indicator, hit its highest level ever at 733.909 on July 11, 1997
but dropped to a five-year low at 325.556 on Sept. 4.

The index closed at 335.810 on Monday. (har/rid)