Stocks an option during high inflation

Stocks an option during high inflation

By Reiner Simanjuntak

JAKARTA (JP): The current uncertainty and looming
hyperinflation in Indonesia's economy demands investors to be
especially shrewd in assessing investment risk, fund managers
have warned.

They said that people should not put all their eggs in one
basket.

But the stock market may offer good opportunities for optimum
return, especially in this high inflation environment.

Elwin Karyadi, marketing director of fund management
operations at PT ABN AMRO Manajemen Investasi said the
uncertainty caused by the country's currency crisis forced people
to be extra careful in investing their money in such a way that
the risks were minimized.

The rupiah has been on a roller coaster ride following its
free float in August. It dropped to its lowest level in January
this year at Rp 17,000 to the U.S. dollar, compared to Rp 2,450
in July last year. The currency is hovering at the Rp 9,000
level these days.

The rupiah's sharp depreciation has caused a serious financial
problem in all business sectors.

"I think many have now begun to understand the importance of
diversifying their investments in order to minimize risk. This
is good," he said.

Although risk diversification is generally good, for optimum
investment return the Jakarta stock market should offer some good
opportunities, said Roland Haas, president director of PT Lippo
Investment Management.

He said that the rupiah could strengthen or continue to
weaken, investors would still make money from stock investment.

"I'm a strong believer in the stock market," he said, adding
that stocks would protect the value of the rupiah against
inflationary pressures.

The government recently announced that the inflation rate in
February hit 12.76 percent, the highest monthly inflation rate in
30 years, prompting analysts to say that the country may be
heading towards hyperinflation.

The inflation rate for January and February alone has already
reached 19.64 percent, almost the same level as the 20 percent
projected by the government for the next fiscal year, which will
begin next month.

Elwin admitted that investors willing to take higher risks for
larger yields had been entering the equity market, especially
since the Jakarta equity market seemed to be vibrant lately with
the composite index surpassing the 500 level Tuesday.

He said, however, that many still question the prospects of
Indonesian listed companies, especially those with U.S. dollar
debts.

The sharp depreciation of the rupiah has caused many companies
to be technically bankrupt due to their mounting foreign debts.

"I'm advising people to invest in selective companies," Haas
said, adding that some companies would be able to service their
foreign debts, especially if the rupiah strengthens.

He said that the 75 percent drop in the rupiah had been a
record in terms of its magnitude and speed. This would suggest
that the currency has reached its bottom and the only way to go
is up.

He explained that the stock market has discounted most of the
negative news. The only thing that the market had not been able
to assess is whether Jakarta would face widespread rioting due to
the economic crisis which has sent staple food prices skyward.

But for investors with a time horizon of at least one year,
the stock market should be a good investment target, Haas said.

He explained that for those who believe that the rupiah would
continue to decline, companies with a U.S. dollar earning base
are good targets. This includes tin mining operation PT Tambang
Timah, international telecommunications firm PT Indosat and
agribusiness company PT Astra Agro Lestari.

For those who think the rupiah will strengthen, companies like
cigarette maker PT HM Sampoerna, instant noodle manufacturer PT
Indofood Sukses Makmur and cement maker PT Semen Gresik are some
of the choices.

Haas, however, stressed that even if the rupiah stabilizes,
companies with dollar-based earnings are still good investment
targets. "In the short-term you may see some profit taking. But
I would retain them for the long-term."

He said that there are many fund managers who are currently
sitting on their cash and they would have to allocate some of
their money to the region.

He added that even short-term investors can still make money
from the Jakarta equity market because there are stocks moving by
20 percent in one trading day.

However he suggested that investors should not buy
aggressively for the time being.

Agus Dharma, president director of fund management firm PT
Intru Nusantara, advised people to let professionals handle their
investments, especially with the current uncertainty.

He recommended that the public invest through mutual funds,
but warned that they should be selective in picking the funds.
"You should check their management, network and the liquidity of
their products," he said.

Intru Nusantara claims its fund achieved an annual return of
more than 38 percent for 1997, which is higher than the average
annual return of 24 percent offered by rupiah time deposits. The
company is strongly backed by PT Makindo Securities, the largest
securities operation in the country, which has put some Rp 10
billion in the funds.

Agus admitted that the funds' 25 percent investment in the
stock market had been a good strategy in achieving the high
return.

What about property? Haas would not recommend the sector
saying that it would take at least two years for the sector to
turn around. "For stocks, it could take only months," he said.

And U.S. dollar time deposits? "The yield would not be
optimum," Haas said, adding that the rupiah has to strengthen.

And rupiah time deposits? "There's an inflationary issue," he
pointed out, adding that investors would still make more money
out of stocks in a high inflation environment.