JSX loses appeal as capitalization of local mart falls

JAKARTA (JP): The sharp decline in the capitalization of the local stock market resulting from the impact of the economic crisis has caused it to lose its appeal to global equity investors, according to a senior executive of a foreign investment management firm.

The chairman of the New-York based investment firm Tocqueville Asset Management L.P., Franscois Sicart on Monday cited the decline of the JSX's market capitalization as discouraging foreign equity investors, on top of prevailing political uncertainties.

"In the case of Indonesia, it (foreign equity investment) has a small impact; much lower than foreign direct investment," Sicart said.

He said that although the JSX's market value stood at $23 billion, less than $10 billion was available to the investing public because the rest was still controlled by founders of the companies and the government.

"For a U.S. or British pension fund this is small change," he said, adding that large investment firms manage funds totaling hundreds of billions of U.S. dollars.

Even though the JSX's market capitalization grew significantly from Rp 215 trillion in 1996 to Rp 367 trillion as of March this year, in terms of dollars it had dropped significantly to $41 billion from $89 billion due to the steep fall in the rupiah value against the American greenback.

Furthermore, foreign equity investment in 1996 was sustained by a stable political environment.

In order to help the market regain its appeal, the government must relinquish more stakes in publicly listed state companies, he said, adding that the increase in the supply of the stocks to the investing public would encourage investors to return to the market.

But he said he understood the government delaying its divestment plans due to unfavorable market condition.

The government recently delayed divesting its stakes in publicly listed PT Bank Central Asia and PT Bank Niaga, after the House of Representatives argued that market sentiment was unfavorable.

"Any delay will have an impact on confidence, on the other hand, business people are more practical, realizing that not everything can be done overnight," he said.

According to him, Indonesia should not rely too much on foreigners to revive its capital market because they, mostly short-term oriented investors in nature, were so unpredictable. Their presence is often unhealthy and it often causes volatile market movements.

"At the moment, you don't really want stock investors to come back," Sicart said.

He advised the Indonesian government should instead try to improve the investment climate to attract foreign direct investment.

According to him, foreign direct investors required some encouragement from the legal side, such as the sanctuarity of contracts or the reliability of the court.

"Under the old regime, there was some predictability about the way things were done, now you have democracy and an unreliable juridical system which frightens people," he explained.

He said that foreign investors highest concern was seeing stability return to Indonesia.

Sicart's Tocqueville manages a total of $1.5 billion in funds, of which 80 percent is invested in the U.S. market.

The firms' clients have an average of five year investment interest in several blue chips companies at JSX, such as PT Unilever Indonesia, telecommunication firms PT Telekomunikasi Indonesia and PT Indosat as well as mining company PT International Nickel Indonesia (INCO).

"I look more at the macro economy, because what will unlock the value (of these companies) is the improvement in the political and the economic macro picture," he said. (bkm)