Foreign investors flock to RI stocks

Riska Rahman

The Jakarta Post


The inflow of foreign funds into the Indonesia Stock Exchange (IDX) remained high in the past few weeks despite the country’s bleak economic outlook as seen in the country’s weak export performance and sluggish economic growth.


Analysts believe that many foreign fund managers entered the local stock exchange to benefit from the low share prices. The share prices on the IDX are relatively stagnant this year with the Jakarta Composite Index (JCI) rising only 1.65 percent year-to-date (ytd) on Monday.


The slowdown in the global economy as the result of the escalation of the trade war between the world’s two giant economies, the United States and China, would continue to affect Indonesia’s foreign trade.


Exports declined by 5.12 percent year-on-year (yoy) in July to US$15.45 billion, while imports fell by 15.21 percent yoy to $15.51 billion. The fall caused Indonesia to suffer a trade deficit of $63 million during the month. Indonesia’s economic growth also slowed to 5.05 percent in the first half of this year from 5.27 percent in the same period last year.


Despite the bleak outlook, the ytd net foreign purchases reached a total Rp 62.19 trillion ($4.37 billion) on Monday. The figure is in contrast to foreign net sales of Rp 50.75 trillion in 2018 and Rp 39.87 trillion in 2017.


Suria Dharma, head of research at securities firm Samuel Sekuritas, said that many foreign investors moved their investments to the Indonesian equity market because the potential gains from Indonesian stocks were still relatively higher than in other markets.


Many American and European managers considered Indonesia as being among the emerging markets that could still provide higher returns.


“The European market’s negative yield has driven investors to look for markets that offer higher yield and Indonesia is fit for such an investor profile,” he said.


Analysts said that foreign investors also injected more funds into the country’s bonds, which offered yields of 7.5 percent a year.


The current 10-year government bond yield of 7.51 percent, he said, lured foreign investors to enter the country’s bond market, which then led to the stock market.


Foreign investors remain dominant in the local stock exchange despite the increase in the number of local investors in recent years.


According to data provided by the IDX, the foreign ownership in the shares traded in the local bourse reach 52 percent. However, local investors still dominate the daily transactions.


Although domestic investors currently dominate the country’s capital market, the capital market authority should be able to attract foreign investors so that Indonesia would have other sources of foreign funds to further cover the country’s high current account deficit, analysts say.


Koneksi Kapital research head Alfred Nainggolan said he hoped the increase in foreign inflows in recent weeks would create a domino effect to make other investors enter the Indonesian market.


“The influx of foreign money could psychologically effect other investors because it signals global investor confidence in our market,” he explained.


Asian stocks rode a Wall Street rally on Monday and were also cheered by a decision from China’s central bank to alter the way it sets a key interest rate benchmark, a move seen by analysts as reducing borrowing costs for companies.


Most Southeast Asian stock markets gained on the day, as hopes that central banks around the world would unleash new stimulus to boost growth eased concerns over a global recession, Reuters reported.


Such hopes found support from the Chinese central bank’s interest rate reforms over the weekend, seen as lowering corporate borrowing costs, and reports of new fiscal stimulus in Germany.


Singapore stocks clawed back ground from the previous session’s losses, supported by financials, while the Indonesian benchmark index advanced to touch its highest level in more than two weeks, buoyed by gains in consumer and financial stocks. The Philippine index and Vietnam shares traded marginally higher, while Malaysian stocks edged down.


MNC Sekuritas analyst Thendra Crisnanda said that global uncertainties from the trade war and rising concerns over global recession would bring negative sentiments to the Indonesians stock market in coming months.


Analysts predict that with such a bleak outlook, the JCI would likely miss the target to hit the 6,800-mark at the end of the year.