Merrill predicts bright future for mutual funds
Merrill predicts bright future for mutual funds
JAKARTA (JP): Merrill Lynch says the development of the mutual
fund industry in Indonesia has a promising future, given the
country's strong economic fundamentals.
Brian A Murdock, managing director of Merrill Lynch Asset
Management, said yesterday that the planned introduction of a new
capital market law would make Indonesia even more attractive for
mutual fund operation.
He acknowledged that the lack of local investor participation
in capital market activities would pose a challenge during the
early stage of mutual fund operations.
"But in the long term, it is an opportunity," he told
journalists on the eve of the first Merrill Lynch Asset
Conference to be held at the Grand Hyatt hotel here today.
Murdock said that the development of the mutual fund industry
in Indonesia is essential, not only in providing an appropriate
vehicle for individual investors, but also in helping investors
to utilize existing investment instruments.
"A mutual fund company would encourage long-term savings
presently held in short-term bank deposits to migrate to the
capital markets," he said.
Investing through mutual funds would benefit individual savers
by giving them access to capital market investment instruments,
which provide better matching of long-term liabilities, such as
retirement and education, with long-term investment assets, such
as stocks and bonds, he said.
Despite flat performance, the Indonesian equity market has
been a safe haven in 1995 for investors in Asia. Only the Hong
Kong equity market has outperformed Indonesia's return to
October.
He said that the Indonesian equity is expected to ease
slightly next year as a result of the government's efforts to
cool down the economy.
Murdock said that the possible increase in interest rates as a
result of the government's efforts to tighten economic liquidity
could have a negative impact on the equity market. But the
possible decline in share prices would not pose a problem for
mutual fund companies, he said, since they could benefit from the
upward trend in interest rates by investing in debt instruments.
He acknowledged that investing in debt instruments would not
be as attractive as equity shares due to the poor liquidity of
their trading in the secondary markets.
"It is true that the secondary market of the debt instruments
is not so liquid. But investors are still able to sell their
bonds," he said.
Murdock said that the increase in capital market liquidity
resulting from the activities of mutual funds would, in turn,
enable the market to effectively deal with the negative impact of
foreign investors' withdrawal.
"Foreign investors' withdrawal could also become an
opportunity for local mutual funds," he said.
According to other experts, besides the promising outlook of
the country's economy, the new capital market law, which is now
awaiting for President Soeharto's approval, will also stimulate
capital market activities.
Important aspects of the new capital market law, besides
giving a stronger investigative power to the Capital Market
Supervisory Agency (Bapepam), include a ruling allowing the
operation of open-ended mutual investment funds, the main
business of mutual fund companies.
The Hong Kong-based Merrill Lynch Asset Management is a
subsidiary of Merrill Lynch & Co, a global financial management
and advisory company, which served as global coordinator of last
year's public offering of PT Indosat. The company is joint global
coordinator of this year's PT Telkom public offering.
The global financial management and advisory company recently
established an Indonesian joint venture, PT Merrill Lynch
Indonesia, in cooperation with PT Persada Kian Pastilestari.
Mitchell Shivers, the president of the Indonesian joint
venture, said yesterday that PT Persada Kian Pastilestari, 80
percent owned by Merrill Lynch and 20 percent by Persada, was
expected to start operations in the next few weeks.
"We submitted our application to Bapepam two weeks ago and
hopefully we will start operation this month," he said during the
media launching of the asset-management conference.
He said that the new company would engage in underwriting,
corporate finance, trading, research and, in due course, asset
management. (hen)