Local capital markets look bullish: Analysts

JAKARTA (JP): This and next year will see increasing liquidity inflows of funds into local stock markets, owing to the downward trends of interest rates, analysts believe.

Timothy S. Gray, president of PT Peregrine Sewu Securities, noted that interest rates appear to be coming down, both internationally and in Indonesia as well.

"As a result, we are now seeing increasing liquidity inflows of funds from international investors to emerging markets, including Indonesia," Gray said here last week.

Gray noted that although the local markets sometimes experience some corrections, the trend shows that they are improving.

He compared the current condition with that in 1993, when a great deal of money was flowing into emerging markets around the world, including Indonesia.

"Looking into 1996 and 1997, this trend will continue, allowing companies to raise more funds from capital markets," Gray said after announcing his company's participation at Indonesia Summit, an international seminar to be opened today by President Soeharto.

Gray projected that more and more foreign investors will flock in because the Indonesian markets offer better returns than other markets in the region.

The Jakarta Stock Exchange (JSX), for instance, is trading against a price earning ratio of about 15 times, a bit lower than an average ratio in the region.

In addition to JSX, Indonesia has the Surabaya Stock Exchange in Surabaya, East Java.

Patrick Alexander, managing director of Peregrine Sewu Securities, said foreign investors' confidence over the Indonesian markets remain high, although there are some concerns about the country's economic policy and political stability.

"The markets tell us that right now there is no big concern about political stability," Alexander said.

Speaking on economic policy consistency, Alexander noted that investors do not concern themselves with details such as small policy changes. They'd rather look at big pictures, key elements and at the macro level.

"What they see is that Indonesia has achieved high economic growth," Alexander said. "Of course there are concerns from time to time. However, in general, Indonesia is consistent."

Alexander noted that more inflows of foreign capital into local stock markets will automatically make the markets more liquid.

Liquidity remains a daunting problem for the markets, due to lack of domestic investor participation.

A number of parties place the blame on relatively high domestic interest rates, which have discouraged locals from investing in equity products offered by the stock markets.

However, B.S. Kusmuljono, president of PT Bank Nusa Internasional, along with banking analyst and legislator Thomas Suyatno, projected that local interest rates are likely to go down this and next year as a result of the government's tightening of bank credit expansion.

Both Kusmuljono and Suyatno predicted that one-year deposit rates will eventually go down to an "ideal" level of 15 percent per annum. Local commercial banks currently offer annual interest rates of 15 percent to 17 percent on one-year deposits.

Kusmuljono said most local commercial banks currently have enough liquidity and thus, it is actually not necessary for them to compete in mobilizing funds by offering high deposit rates.

The chairman of the Capital Markets Supervisory Agency, I. Gede Putu Ary Suta, said last week that the declining interest rates would help local markets to groom their domestic-investor base.

"As interest rates are beyond my capacity to influence, I would rather urge securities companies to actively net local investors by offering better services," Putu said at a seminar here.

To help build up domestic investor-based capital markets, Putu encouraged custodian banks and fund managers to establish mutual funds.

Alexander supported Putu's suggestion, saying that such mutual funds will especially help attract retail investors, who have potential to help activate the local markets, but are currently still neglected.

"Probably it is time for doing that now (establishing mutual funds), as the capital market law has already made it possible and the Directorate General of Taxes has clarified the tax regulations for mutual funds," Alexander said.

He said that Peregrine Sewu Securities plans to establish a mutual fund later this year.

Gray, meanwhile, suggested that securities firms in the country join in the government's efforts to educate the people about investing on stock markets.

"When domestic investors are become better educated about the markets, they will receive the benefits," Gray said. (rid)