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)