International Herald Tribune, Wednesday, September 28, 2005
Around Asia's markets: Is history repeating itself in Indonesia?
- Darren Boey Bloomberg News
Overseas investors have taken last month's tumble in the Indonesian financial markets
as an opportunity to buy stocks like Telekomunikasi Indonesia, brushing off
comparisons with the Asian crisis of 1997.
That year, a slump in the Thai baht sparked a regional collapse in currencies and
stocks, halted only by a $118 billion bailout led by the International Monetary Fund.
Since then, the countries worst affected - Indonesia, Malaysia, South Korea and
Thailand - have trimmed debt, eliminated or pared current account deficits and piled
up foreign currency reserves.
Nevertheless, the comparisons came after the Indonesian rupiah slumped 11 percent
last month to a four-year low, as speculators bet that the government's financing of
fuel subsidies would weaken the currency. Stocks followed, with the Jakarta
Composite index on Aug. 29 surrendering all the year's 18 percent gain.
"This Indonesia thing is a storm in a tea cup," said Geoff Lewis, Hong Kong-based
head of investment services at JF Asset Management. "I don't see any chance of this
developing into a 1997 crisis. Asia's made too much progress."
As of Sept. 23, overseas fund managers had bought 3.26 trillion rupiah, or $317
million, of shares since the composite index fell from its record high on Aug. 4,
according to stock exchange data compiled by Bloomberg. The index has risen 4.2
percent since Aug. 29.
In dollar terms, the benchmark has fared better still, as the rupiah recouped some of
its losses. The currency's 5 percent gain has placed the Jakarta Composite as the
11th best-performing benchmark of 79 stock indexes tracked globally by Bloomberg in
that period, with a 10.1 percent gain.
Telekomunikasi Indonesia, the nation's biggest phone company, gained 8.9 percent in
local currency terms since Aug. 29, making it the largest contributor to the Jakarta
Composite's advance. The company's shares account for 15 percent of the index.
Bank Rakyat Indonesia, which makes up 4.4 percent of the index, rose 9.7 percent.
While 1997's contagion spread from Thailand, Indonesia's currency and equities were
the world's worst performers in the second half of 1997, according to Bloomberg data.
The Jakarta Composite index declined 75 percent, while the rupiah tumbled 55
percent.
"In the lead-up to the Asian crisis, there was huge overinvestment," said Tim Rocks,
Macquarie Securities' Asian equities strategist. "These countries had high levels of
debt. Huge mismatches of debt."
In the first quarter of this year, Indonesia's short-term debt as a proportion of
foreign-exchange reserves had fallen to 44 percent from 126 percent in 1996,
according to a Credit Suisse First Boston analyst, Sailesh Jha.
"The situation is far healthier," Shane Oliver, head of investment strategy at AMP
Capital Investors in Sydney, wrote in a Sept. 2 report. "The risk of another Asian crisis
is very low."
Still, Franki Chung, an investor at TAL Global Asset Management in Hong Kong, said
markets like Indonesia were "only for the brave." Chung said he preferred Singapore
because of its fiscal and economic management. The city is the only country in Asia
to be given an AAA long-term debt rating by S&P, the highest sovereign investment
grade.
Some investors regard Indonesia's woes as being specific to that country because the
government subsidizes the cost of fuel for its 238.5 million people, 40 million of whom
are unemployed or lack regular income.
"The problem has been building," said Christopher Wood at CLSA. "Given the history
of capital flight in Indonesia, it's more important to be decisive."
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