Indonesia to remain attractive destination of global funds

Thursday, 9 December 2010

The Jakarta Post

Indonesia will remain one of the world’s most attractive destinations for global portfolio investment thanks to the country’s healthy economic growth, securities analysts have said.

Matthew Brown, head of Citi’s Asia Pacific Fund Services, said at a seminar on market outlook in Jakarta on Wednesday that Indonesia’s overall economy showed a significant growth opportunity, which made it an attractive destination for foreign funds.

“The recovery will continue ... There will be a lot more capital flow to Asia. The Europe and United States are looking for new opportunities and that’s important,” he told reporters following the event.

The Indonesian Stock Exchange (IDX) is among the best performing stock markets in Asia this year. The benchmark Jakarta Composite Index (JCI) has grown about 45 percent so far this year as foreign investors continued to pump funds into the Southeast Asia’s biggest economy. On Wednesday, the index rose 1.28 percent to close at its new record high of 3,769.99.

Brown explained that approximately US$60 trillion was seeking to be invested at present, $48 trillion of which is owned by European and US’ investors. “The funds are in the process of re-evaluation and asset restructuring that’s going to result in increased capital flow, which will continue in the next two or three years,” he added.

Investors, according to Brown, always want exposure in emerging markets to some degree, and Indonesia is among them.

With near-zero rates in developed nations like the US and Japan, Indonesia’s 6.5 percent benchmark interest rate has attracted foreign investors to invest in both debt and capital markets. About Rp 115.3 trillion of foreign funds have entered the nation’s stock and debt markets so far this year, a condition that has worried regulators due to fears over a sudden reversal that could hamper economic activities.

Tigor M. Siahaan, Citi’s country business manager, estimated Wednesday Moody’s would soon upgrade Indonesia’s sovereign rating to a level below the investment grade in line with the improvement of the country’s economic performance. “Moody’s was here last week talking to the government. So in several weeks we expect them to come up with an upgrade,” he told attendees at the same seminar.

Meanwhile BNP Paribas said Indonesia’s benchmark index may increase 20 percent within a year on an expected upgrade on the country’s sovereign debt rating. “Despite outperforming its peers in the region this year, we do not believe that the benefits of the re-rating have been fully priced in,” analyst Elvira Tjandrawinata told Bloomberg. “Other catalysts could include a continued pick up in investment, which would feed consumption, making it stronger and sustainable,” Elvira said.