Indonesia’s benchmark stock index may rise as much as 16 percent by year-end, as the bourse lures local retail investors to counter sales by overseas funds amid Europe’s debt crisis, the nation’s exchange president said.
The Jakarta Composite Index may advance to as high as 4,500, said Indonesia Stock Exchange President Ito Warsito, who was approved by shareholders yesterday to serve a second three-year term. The index closed at 3,887.58 today. The bourse expects to almost triple the number of local investors to 1 million by 2015, from about 395,000 currently, to help cushion the market from external shocks, he said.
“Our market is more resilient than it was in 2008, and that’s with less than 400,000 local investors,” Warsito, 50, said in an interview in Jakarta yesterday, referring to the index’s 51 percent plunge that year amid the global financial crisis. “With 1 million investors, we’ll be more resilient.”
The gauge has lost 5.7 percent this quarter as overseas funds sold riskier assets amid concern European debt woes are worsening and China’s economic slowdown is deepening. That compares with a 13 percent drop in the MSCI Emerging Markets Index and a 9.2 percent loss in the MSCI Asia Pacific Index. Foreign investors sold a net $2.04 billion of Indonesian stocks this quarter, poised for the biggest selloff since the three months ended March 31, 2005.
JPMorgan Chase & Co. downgraded its outlook for Indonesia to neutral from overweight on June 21, saying slowing growth in China may cut demand for commodities from the world’s largest exporter of thermal coal.
Foreign investors accounted for about 42 percent of trading in Indonesia this year, compared with 35 percent last year, Warsito said. Indonesia’s retail investors amount to about 0.2 percent of its total population. The bourse plans to increase that eventually to 1 percent, or about 2.3 million, Warsito said.
The bourse is educating the public about stock investments through 16 capital-market information centers around the country. It’s also seeking to accelerate the licensing process for capital market personnel such as marketing staff, Warsito said.
“Education is important,” said Jason Shin, president director at PT eTrading Securities, Indonesia’s biggest online brokerage. “But tax incentives are also important. The government should take concrete measures to increase the number of investors,” he said.
Indonesia’s gross national income per capita rose 69 percent in the nine years to 2009, widening the pool of middle-income class households that may invest in stocks. Gross national income per capita rose to $3,720 in 2009 from $2,200 in 2000, according to a World Bank statement on its website.
“The market for equity mutual funds is still promising,” Abiprayadi Riyanto, chairman of the Indonesian Mutual Fund Managers Association, said today. “Indonesia’s economic growth is driven by domestic demand. Sixty percent of Indonesians are in the productive age of 15 to 50 years, meaning more consumption in the future.”
The nation’s economy, Southeast Asia’s biggest, expanded 6.46 percent last year, the fastest pace since before the 1997 Asian financial crisis, as rising investment and domestic spending countered a slowdown in exports demand as Europe’s debt crisis worsened.
Domestic consumption made up 55 percent of the economy in the first quarter, according to data from the central statistics office.
The benchmark index has risen 1.7 percent this year, trading at 13.5 times estimated earnings, compared with the MSCI Emerging Markets Index’s 9.9 times.
“Indonesia’s economic fundamentals and companies’ fundamentals are still good,” Warsito said. “Whatever happens in Europe, foreign investors will still need to invest their funds.”