JSX management to review composite index criteria

JSX management to review composite index criteria

JAKARTA (JP): The Jakarta Stock Exchange (JSX) management said
on Tuesday it would review criteria for calculating the composite
index after a huge rights issue by Bank Danamon virtually left
the index at its mercy.

Analysts hailed the move, saying it would prevent fund
managers from abandoning the index on the pretext it no longer
represented the entire market picture.

Bank Danamon's 215 billion rights issue on Monday made it the
largest stock and gave it a disproportionate influence on the
index, the exchange said in a statement.

One point movement, equivalent to a Rp 25 rise or fall, in
Danamon's shares will cause the benchmark index to fluctuate
10.861 points, it said.

"Starting April 6, the calculation of the composite index will
no longer include shares that are added in very large numbers,"
it announced.

"In the meantime, the JSX along with the index committee will
review the criteria for calculating the index in order to ensure
it is reasonable even if there are additions of shares in large
numbers."

The research head at Trimegah Securindolestari, David Chang,
said the move was needed to make the index representative of the
entire market situation.

He also believed it was timely, noting that more huge rights
issues from listed private banks would come on stream in the near
future.

In the pipeline are rights issues from Bank Internasional
Indonesia, Bank Lippo, Bank Niaga, Bank Universal, Bank Tiara
Asia and Bank PDFCI.

Chang said share prices of those banking stocks were very low
now, which would mean they would dictate fluctuations in the
index if they floated huge number of rights shares.

He believed it would be fair for JSX to reduce the weighting
of banking stocks in the composite index to reduce or eliminate
the tendency.

"But in the future, when the banking sector improves and their
share prices go up, they should increase the weighting. I think
that is fair."

If such an adjustment was not made, Chang said, fund managers
would be forced to buy banking stocks to balance their portfolio
or abandon the composite index altogether.

"If not adjusted, fund managers perhaps will not use the
composite index to look at the market because the composite index
will be very volatile. Therefore, they would have to look at
another index, which may be the LQ-45."

Research head at BNI Securities Adrian Rusmana contended that
even the LQ-45 would not suffice for fund managers' needs.

Adrian also noted that adjustment to the current composite
index would change its function to cover all transactions.

He recommended the JSX create another index which would meet
investors' need.

"With those banking shares, the composite index does not
mirror the market anymore. Therefore, the JSX should consider
introducing another index, which could be used as a benchmark."

Chang disagreed with Adrian's suggestion for another index,
arguing it would fail to attract fund managers.

"If they introduce another index, then we will have too many
indexes. If we have a lot of indexes, after a while nobody will
use them and they will return to the composite index. Creating a
new index is very easy, but if nobody uses it, what's the point?
It will be useful for us to make adjustment," Chang said.

Adrian responded the best solution in lieu of a new index
would be to suspend trading on most banking shares, especially
those undergoing government-sponsored recapitalization.

"Why not just suspend trading of those shares. They are mostly
empty shares, no significant fresh money injected into the bank.
This manipulates the market," Adrian said. (rid)