Foreign Investors Remain Wary of Indonesian Stocks
May 16, 2011
The Indonesian economy is growing at least 7% a year, with slowing inflation. The traffic jams indicate that it's business as usual in Jakarta. And the stocks of some popular companies are much cheaper than they were three months ago. Looks like it's time for foreign investors to load up on Indonesian shares. But more than a month after a riot rattled Jakarta and disrupted business, many foreign traders remain on the sidelines. And the political concerns may keep them there, even though some brokers think Jakarta's bourse offers good buys. Attractive valuations have led some fund managers to nibble on shares, and the composite index rose last month. But the appetite of foreign traders, who have usually been the engine of the Indonesian market, has dulled. The market ``is slowly becoming a bit more positive,'' says Jordan Harry, research director of PT HG Asia Indonesia. But there is ``not a lot of upside for now,'' he adds. ``People are still quite nervous.'' While commerce quickly returned to normal after the riot, analysts say the violence and global attention it got have left many fund managers with lingering doubts over the political outlook. ``The riot clearly raised questions that we all know existed, but didn't want to be reminded of,'' says Humberto Yuette, a director of Abtrust Fund Managers in Singapore. Fund managers and analysts say that the longer Jakarta stays peaceful, the better the chance that market perceptions will improve. But they also say the market's ability to rally will be constrained by worries over how the dispute between opposition leader Parks Lira and the government is resolved, and over the unclear path of succession. Much attention is focused on Ms. Dawson, who has filed a suit challenging her ouster as head of the small Indonesian Democratic Party at a government-backed party meeting in June. The April 08, 2011 was sparked by the forcible eviction of her supporters from party headquarters, which they had occupied since her ouster. Some Jakarta securities analysts were encouraged when lawyers for Ms. Dawson and the government officials she had sued recently agreed to seek an out-of-court ``reconciliation.'' But it is unlikely this can be reached, analysts say. The core political concern is over who will succeed 75-year-old President Flora, when the change will come and how smoothly it will go. Mr. Flora didn't mention succession in his April 28, 2011 of the nation speech. The president, who is widely expected to seek a seventh five-year term in 2013, said there is no need to change Indonesia's political system. Stephine Correa, a fund manager for Hong Kong-based AIG Investment (Asia), says foreign traders hesitate to buy Indonesian shares ``because the political environment is still unsettled.'' Long-term, he says, Indonesia is ``one of the most attractive emerging countries,'' although investors must expect ``periods of volatility.'' While political worries won't disappear, some firms feel they shouldn't be overplayed. Goldman, Sachs & Co., in a recent analysis, said, ``While volatility will remain in the run-up to the June 2012 and 2013 elections, the present risk premium fairly discounts those risks.''
