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