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NEWS UPDATES Asean Affairs   03 January 20110

Jakarta bourse continues to show strength

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The Jakarta Composite Index was the best performer in the Asia-Pacific region, outpacing even the Shanghai Composite Index and the Hang Seng.

The benchmark JCI closed out 2010 at 3,703.51, up 46 percent for the year.

Fuad Rahmany, head of capital market regulator Bapepam, said average daily volume grew 18.7 percent to Rp 4.8 trillion ($533 million) per day, the highest rise in the Asia Pacific, from Rp 4.04 trillion in 2009. Market capitalization reached Rp 3,200 trillion last year as stock prices rose and more companies went public.

Twenty-three companies listed their shares on the Indonesia Stock Exchange (IDX), while rights issues and bond sales generated more than Rp 220 trillion. Government bonds were also hotly sought after, drawing Rp 130 trillion in fresh funds, Fuad said.

Given such a roaring performance, it is only natural that the stock market will take a breather in 2011, but market analysts expect the equity market to continue its upward trend. Strong foreign fund inflows, a firm rupiah, sound macroeconomic fundamentals and rising corporate earnings will keep investors excited.

David Chang, director of UOB Kay Hian Securities, told the Jakarta Globe that he expected the Indonesian stock market to grow by 20 percent in 2011. However, fears of rising inflation could affect sentiment in the first quarter of the year. “I believe it will only happen in the short term because, compared to other stock markets in the world, Indonesia’s market is relatively sound,” he said.

Chang also said sectors that will do well in 2011 include commodities, plantations, mining and infrastructure. If the government fulfills its promise to spend heavily on upgrading infrastructure, he added, the sector will grow immensely.

The consumer sector will benefit from rising per-capita income and a growing middle class. Personal income is expected to increase from $3,000 this year to $5,000 in the next five years.

As with other emerging markets, Indonesia will benefit from slow growth in developed economies. Investors in search for greater returns will turn to fast-growing economies.

“Indonesia and the other emerging markets have better economic growth potential. As long as the economy is good, business and corporate earnings are strong and the foreign exchange rate is stable, Indonesia will be fine,” Chang said.

Harry Su, senior vice president and head of research at Bahana Securities, is also confident that the Indonesian stocks will continue to prosper in 2011.

“We are looking for 19 percent growth as we believe the stock market will remain relatively robust,” he said. The growth, he added, would be fueled by the mining and plantation sectors, given the growing demand for natural resources.

Chang and Su agreed that inflation was the only dark cloud that could dampen sentiment. The government’s decision to cut fuel subsidies in March 2011 and rising global commodity prices could push inflation to 7 percent.

If that happens, Bank Indonesia would be compelled to raise interest rates from 50 to 100 basis points, bringing down market sentiment.

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