Pension funds stay with banks

JAKARTA (JP): The country's pension funds continue to put most of their money in bank deposits despite the sharp drop in interest rates, investment analysts said.

Director of PT Citicorp Securities Indonesia Rizka Baely said on Wednesday that about 90 percent of the total Rp 20 trillion (about US$2.35 billion) in pension funds was deposited in banks.

"Only about 10 percent of their money is put in stocks and bonds."

He said the unbalanced investment reflected the investment fund managers' worries about the country's portfolio investment climate.

Most of the managers are taking a "safety first" approach in facing the uncertainty, he said, adding that the strategy was out of the question at more stable times.

Interest rates, which peaked at 70 percent in July last year in conjunction with the government's tight monetary policy to ease high inflation pressures, have gradually decreased in recent months. The rate on the three-month deposit, for example, has returned to the precrisis level of about 13 percent to 14 percent per annum.

Rizka said that investing in the stock market should theoretically yield higher returns than putting money in banks because most of the shares were undervalued.

Senior economist Syahrir agreed that it was now time to enter the stock market because many shares were already undervalued, especially those in the consumer goods sector and ones that are export-oriented.

He advised pension funds to enter the market now and hold their investment at least until after the presidential election in November.

He said the strategy would give them higher yields than the 13 percent interest rates currently offered by domestic banks.

Syahrir, president of PT Syahrir Securities, based his stock market prediction on a turnaround in the country's economic indicators.

He said that economic growth this year was projected to be minus 1 percent, compared to minus 13.7 percent last year.

The inflation rate, which reached as high as 77.6 percent for the whole of 1998, has continued to decline since early last year. But it has been in negative territory since March; August's inflation was minus 0.93 percent, compared to minus 1.05 percent and minus 0.34 percent in July and June.

Syahrir also predicted that the rupiah would strengthen against the greenback at the end of the year. He said that anticipation of a stronger rupiah would fuel positive sentiment on the local stock market.

Foreign investors, he added, would interpret a strengthening of the rupiah in the near future as a message to enter the stock market.

Syahrir said that investors should stay away from property shares because the recovery of most companies in the sector was not predicted in the near term.

"I don't recommend that anybody invest in the property sector until at least another five years from now," he said. (udi)