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NEWS UPDATES 20 September 2010

Foreign funds flow into Indonesian stock market

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Foreign funds continue to dominate trading on the Indonesian Stock Exchange (IDX) as global fund managers move into emerging markets for higher returns.

The surge in foreign capital sent the benchmark Jakarta composite index (JCI) to a new record high last week. After a five-day break ending Tuesday, the JCI climbed 154 points, or almost 5 percent, from Wednesday to Friday, to close at an all-time high of 3,384.

The IDX data showed over Rp 3 trillion (US$333 million) of net foreign purchases were booked during the three-day rally, during which total transactions surpassed Rp 18 trillion. The total amount of capital inflow has surpassed Rp 19 trillion so far this year.

Foreign investors have been pouring capital in Southeast Asia's biggest economy, due to strong economic fundamentals and corporate earnings, which have performed strongly this year.

Securities analysts, however, warned that uncertainty in some European countries and the slow economic recovery in the US, should be closely watched, saying that another crash in the capital market could occur in the future if the global economy does not improve.

"If there's a shock in the global market, it could lead to rapid outflow of foreign funds from the local exchange," said Fauzi Ichsan, a senior economist at Standard Chartered Bank Indonesia.

"Foreign investors have shifted their idle funds from the money market to the stock market due to more promising gains," said Yanuar Rizky, a stock market analyst.

Indonesia, benefits from the foreign splurge as the JCI continues to make gains among other regional indexes.

The JCI is one of Asia's best-performing indexes, gaining more tha 31 percent so far this year, compared to other Asian peers like Singapore's Strait Times Index, which has advanced 6.2 percent, Hong Kong's Hang Seng Index 0.67 percent gain and Tokyo's Nikkei 9.6 percent loss.

Mandiri Sekuritas chief economist, Destry Damayanti, said that strong expectations for corporate earnings had further fueled investors' enthusiasm to invest in the country.

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