Stock market bolstering

Stock market bolstering

Your editorial Stock market bolstering (Jan. 19, 1996) was impressive. The Indonesian government did an excellent job issuing 103 regulations for the new capital market law (Law No. 8/1995). As you rightly said, these regulations will provide stronger and clearer legal framework for Indonesia's emerging stock exchanges.

Although the government is doing its job well, I feel that journalism in the country is still not geared to support the government's objective of developing a more transparent, efficient and broadly based capital market. In the absence of support from local media, government regulations, especially allowing 85 percent foreign ownership of securities companies, may be counterproductive.

I do not agree that, as stated in your editorial, "foreign ownership of securities companies will further help bolster the markets because foreign securities houses are known for their organized and developed research capability."

In my opinion, the foreign securities houses cater to a different clientele altogether. The foreign investors differ with the domestic investors in their vision, risk taking capacity, availability to faster information and accessibility to worldwide markets. A sizable section of domestic investors will confine themselves to the local capital market. For these investors, information on the strengths of the listed companies, like Price Earning Ratios, Price to Book value, Dividend policy, etc. is important. Of course this information is important to all investors, both local and foreign. Foreign investors, though, play the market with a different perspective. They invest and withdraw from a country's market depending on factors such as U.S. interest rates and the availability of better scrips.

In the absence of informative local journalism on the above parameters, local investors tend to follow foreign investors, giving credibility to the research capacity of the foreign investors and to their wisdom to chose good scrips. This is dangerous. When foreign investors want to leave the market, for whatever reason, the local investors fail to take advantage of the situation and in a panic try to sell the same scrips foreigners are selling -- creating a worse case scenario in the market.

Here lies the role of informative, if not investigative journalism by the local media. Until last year, The Jakarta Post published a table on Mondays, showing the Price Earning Ratio and Price to Book value and fluctuations of the prices of scrips traded for the week. When this information was published, I felt that The Jakarta Post was doing a good job and would in future develop this information. Unfortunately, you thought fit to drop this table.

As the leading English newspaper, The Jakarta Post can contribute substantially to the government's objective of developing local investors to make the market grow steadily and healthily. The key is in informative journalism.

D. PRABHAKAR

Jakarta

Note: We are planning to resume our weekly stock market review.

-- Editor