JSX loses appeal as capitalization of local mart falls
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)