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)