Japanese funds welcome decision to float rupiah

Japanese funds welcome decision to float rupiah

TOKYO (Reuter): Indonesia's decision to float its currency has
been welcomed by Japanese funds, helping to reinforce their
relatively positive view of the country despite turmoil in Asia
as a whole, fund managers in Tokyo said.

And while Japanese funds remain wary about the latest economic
trend, none said they had any plans to substantially reduce their
Indonesian investment at present.

"The fundamentals in Indonesia are basically strong, so we
don't have any specific plans to lower our Indonesian weighting
now," said Teru Watabe, general manager of the international
department at Asahi Investment Trust.

"There's no need to reduce investment much, because even
though growth may undergo a bit of a correction (after the
float), there are also expectations of a technical rebound," said
Hiroshi Ando, director of the equity fund department at Daiwa
Asset Management Co.

Indonesia floated the rupiah on August 14, scrapping a
previous system under which the central bank set daily bands in
which the currency could trade against the dollar.

By Friday afternoon, the rupiah had fallen to a record low of
2,890 to the dollar. But fund managers took this in stride,
noting that Indonesia's economy is more heavily based on exports,
making a weaker currency a plus because it makes those products
less expensive.

"Although a bit of a drop in the rupiah is inevitable, (the
float) is an improvement for Indonesia," Asahi's Watabe said.

"The rupiah will probably fall even more, but they obviously
want to promote the rupiah as an export currency," said Daisuke
Hiratsuka, deputy chief of the Econometric Analysis and
Forecasting Division of the Institute of Developing Economies.

He said further depreciation would offset wage increases as
Indonesia develops and keep it competitive as an exporter nation.

"The medium and long-term outlook is quite good. This will
probably lead to further growth and could be a stabilizing factor
for the economy," he said.

Fund managers agreed, noting that circumstances are different
than those of Thailand, which led the way for other Southeast
Asian nations by floating the baht on July 2. The Philippines
followed about a week later.

The sluggish Thai economy, general market turmoil, and an
initial currency plunge in May has caused Japanese investment
trust management funds to sharply trim their Thai holdings from
98.9 billion yen in December 1996 to 46.5 billion yen by end-July
this year.

But their Indonesian holdings have actually grown, from 41
billion yen in December last year to 48.5 billion yen at the end
of July.

Asahi Investment's Watabe said his company began to cut
holdings in Thailand early this year and later in the Philippines
and Malaysia.

Currently, the weighting of Thailand and the Philippines have
been reduced to near zero.

"At this point, among the so-called 'emerging ASEAN' markets
of Thailand, the Philippines, Malaysia and Indonesia, I'd say
Indonesia seems one of the better prospects," he said

But he added that economic trends deserve further watching,
with inflation one of the biggest potential dangers.

A manager at a major fund, who declined to be named, agreed
that it is still necessary to be "prudent" about Indonesia.

"We suspected that something like the current turmoil might
happen, so earlier this year we reduced our weighting of
Indonesia and went overweight on Hong Kong," he said.

But he added that his firm had still launched an Indonesian
fund in late May and that they were unlikely to further reduce
Indonesian holdings for the present.