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Indonesian stocks boom -- Can it stay the course?

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By Elizabeth Pisani
777 words
4 September 1989
Reuters News
(c) 1989 Reuters Limited

SEPT 4, Reuter - Jakarta's tiny stock market is shooting through the roof, and analysts wonder if its creaky framework of regulations can take the pace.

Finance Minister Johannes Sumarlin said in a speech he recognised the growing pains, but they would be dealt with in new measures to protect investors and smooth out market distortions. Vague promises, one analyst said.

Looking for openings in high-growth Asia, investors have kept a close eye on Indonesia, believing its solid export-based growth and sound economic management made for a healthy future.

The problem was there was almost nothing to buy. Of the 24 shares listed since 1984, eight were open to foreigners.

But a rash of recent deregulation brought companies rushing to the market -- 15 in the last four months, with 43 And with the shares have come investors. Turnover jumped to an average of 807,432 shares a day in August, four times that in July. The market index zoomed to an all-time high of 478.8 on September 1, up 48 pct in one month. Hong Kong-based fund managers are pouring money in and Japanese institutional investors are interested, brokers and investment bankers said.

"The market is swamped by money looking for an investment opportunity in Asia," said a foreign broker.

Outsiders are competing with locals who, seduced by the widely publicised success of recent issues, are descending on underwriters to snap up application forms, sometimes trading just the forms for up to 300,000 rupiah (170 dollars).

The market's promoters, led by Marzuki Usman, who heads the government's capital markets agency Bapepam, have clearly been successful, but they are also its regulators.

Analysts question whether they can do both jobs effectively.

"They used to regulate to death, and there was no trading. Now they don't regulate worth a damn. Things are booming, but sooner or later something will blow," said a financial analyst.

Marzuki dismisses this with a wave of the hand. "Regulation, regulation, that's all I hear. We want less of it, not more," he said.

Investors are not so sure. Vagueness over what shares foreigners could buy made the government look indecisive.

Antiquated trading procedures need work and all agree the exchange needs to be computerised.

"If we leave it to Bapepam, it will take forever. You have to put a stick of dynamite under them to get anything moving," the analyst said. Marzuki is the first to agree. His solution is simple: privatise the stock exchange.

"Then if the underwriters want to make money they buy technology. The sooner they do it the sooner they make money," Marzuki said. Officials say privately they hope the exchange might be sold to its members by the beginning of next year.

"In principle, great. But what about things like expertise, staff, training?" a financial advisor to the government said.

With shares doubling their issue price on the first day of trading, investors don't worry too much about clumsy procedure, and long settlement times.

"Fundamentals? Pah! Just get me something in Indonesia," is how one stockbroker described his overseas clients' attitudes.

Investors are so keen to get in, they are paying up front for all the shares they apply for.

The underwriter sits on this cash until about a week after allotment, when it pays for shares or gets returned. Meanwhile, he accrues around 12 pct annual interest.

Tractors issue would have left underwriters sitting on more than half a billion dollars worth of investors' money. Not an incentive to speed p 8aperwrk nanalysts say.

"The longer they sit on these wretched funds, the more someone is creaming off. It's most unsavoury," said the treasury manager of one foreign bank.

"At the moment everyone is making enough money, they don't care," said Marzuki. "When they start complaining too loudly the underwriters will do something. Why should we regulate?"

"Why?" the financial adviser said. "Because all it takes is for one new issue company to go belly up, for one broker to overextend himself, and bang, you lose all the progress.".

A local banker said "Liquidity is still a problem. When it comes to the crunch, and it will, there won't be a buyer for miles. There will be no one, but no one, to stop a slide."

For all their concern, market-watchers say the current frenzy of activity in Jakarta is the start of something great.

"The solutions to most of the problems are time and growth. We just have to make sure we can match them up," said a capital market adviser.


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