Vincent Lingga, The Jakarta Post, Medan | Mon, 10/25/2010 10:33AM
The debt crisis in Greece last April triggered market panic across Europe and set off a free fall in global stocks in May and created a bearish sentiment in the Asian markets. The Indonesian Stock Exchange (IDX) composite index fell to 2,514.11 on May 25, the lowest level since last December, after more than US$5.5 billion in foreign were pulled out.
What a contrast to the mood at the IDX now.
The market has been roaring since early July, hitting all-time highs as the combination of near zero interest rates in the developed countries and bullish sentiment in the largest Southeast Asian economy has made Indonesia a top destination for foreign investors.
More than $13 billion (net) worth of portfolio capital flowed into the financial market through stocks, government and corporate bonds and Bank Indonesia debt papers (SBI) in the first 10 months of the year alone, raising the total value of the financial market to Rp 287 trillion ($32 billion) as of last week.
When the stocks index rose to the highest-ever recorded level of at 3,013.40 on July 21, or up 19 percent from early January, many analysts thought the year’s peak had been reached. But the index continued toward the stars, setting a new all-time record of more than 3,600 recently before dropping off slightly to below 3,600 last week.
Several analysts, however, have raised concerns that stock prices may no longer be sustainable and could enter a roller-coaster cycle because the price earnings ratio (the ratio of share prices against expected income) has exceeded 30 to one — the highest level in Asia.
“I think a significant market correction is in the offing,” said Haryajid Ramelan, an analyst at PT Capital Bridge Indonesia, at an investor gathering in Medan, North Sumatra, last week.
Ramelan said 3,200- 3,300 would be a more sustainable range for the IDX index for the next few months.
Handrata Sadeli, president of PT Panin Sekuritas, said he also forecast a market correction but not as big as last May’s because Indonesia still offered a promising growth opportunity with an increasing number of new shares issues.
The first nine months of the year saw 12 initial public offerings, and 13 more, including one for state company PT Krakatau Steel, are in the pipeline.
Only one of the 12 new share issues declined on the secondary market, while the others gained in price by 12 to 677 percent.
Surya Maulana of PT Dongsuh Securities agreed there would be fairly serious risks of choppiness in equity markets if capital continued to pour into Indonesia as foreign investors could suddenly decide to withdraw their money, as they did in 2008.
“As long as transactions on the IDX are still controlled by foreign investors our market will remain prone to a boom-and-bust cycle,” Maulana added.
“As long as transactions on the IDX are still controlled by foreign investors our market will remain prone to a boom-and-bust cycle.”
However, several other analysts who attended the investor gathering remained confident that foreign investors would continue rushing into the market in part to take advantage of the growing gap between near-zero interest rates in the United States and Japan and the 6.5 percent rate in Indonesia.
As the difference between the rates grows, traders can make more money by borrowing dollars and yen for cheap and investing those funds in higher yielding stocks and bonds in Indonesia.
Several other analysts here are concerned about the torrent of funds flowing from developed countries as they have been pressuring the rupiah to strengthen, risking a bubble in the stock market.
They see the dizzying heights of the stocks as unjustified even in light of the country’s high growth rate, which is estimated at slightly more than 6 percent this year, up significantly from 4.5 percent last year.
The big concern is that the bulk of the foreign money flooding into Indonesia is going into equities and debt instruments, rather than into green-field (new) projects and start-up businesses.
But Maulana said he was confident the IDX would remain bullish at least until the end of the year because investors were unlikely to find better opportunities elsewhere in the world.
IDX director Eddy Sugito has said he is confident that the IDX’s sterling performance will continue because the positive sentiment there is based on a bright outlook on economic fundamentals and the corporate sector supported by strong domestic consumption and high commodity prices.
Many analysts here shared Sugito’s bullish sentiment, noting that the strong demand for commodities in other Asian countries would continue to be the main driver of the IDX’s growth, given Indonesia’s important role in such minerals as gas, coal, nickel, copper and agricultural commodities including palm oil, rubber, cocoa and wood-based products such as pulp and plywood.
