YEAR END SEES DOWN-WARD PORTFOLIO INVESTMENT

By Andi Abdussalam

Jakarta, Dec 28 (ANTARA) - Foreign funds in the domestic portfolio investment over the last several weeks in the runup to the end of the year have been declining, yet optimism is still there where foreign funds are expected to return next year due to the country's predicted better economic condition.          Although there was an increase in foreign fund investment in the second week of December, yet in the same week the investment again declined. The decline in the foreign investment in domestic market in the last several weeks was due to profit-taking by foreign investors and the increasing trend of unfavorable global economic sentiments.          Ahead of the Christmas holidays and year end, Bank Indonesia (BI/the central bank) recorded the declining of foreign funds in the rupiah portfolio investment in the third week of December, as a result of profit-taking and the maturity of BI certificates (SBI).          BI Spokesman Deifi A Johansyah said on Wednesday that during a week last week, there were foreign investment outflows amounting to Rp1.10 trillion. Portfolio foreign investments in the SBI and state debentures (SUN) were respectively reduced by Rp1.07 trillion and Rp290 billion.         The developments cut foreign investment ceiling in the SBI to 26.95 percent of the total SBI outstanding values, which were lower than the previous ceiling of 27.48 percent. The same is also true to the foreign fund ceiling in the SUN which was reduced to 30.80 percent from the previous 30.83 percent.          Apart from its reposition at the year end, the decline of foreign funds in the SBI had been taking place since the middle of October 2010 over the BI policy which obligated investors to hold the SBI at least for one month.          On the other hand, foreign ownership in state securities (SBN) remained stable at 29.8 percent while that in the SBI dropped slightly from 27.5 percent to 27.0 percent.          Last week, there was a new bond issuance by the banking sector which consisted of two series with a total value of Rp1.1 trillion. Thus, the corporate issuance of bonds in December was recorded at a value of Rp3.9 trillion. On a year to date basis, it has reached Rp36.8 trillion which were far higher than that in the previous year which stood at Rp28.9 trillion.          At the beginning of the second week in December, BI noted that foreign investors had began placing their funds in the rupiah financial instrument worth Rp5.19 trillion after they adopted the wait and see attitude in several weeks earlier.          The foreign funds invested with the SUN thus increased to Rp1.70 trillion so that it raised the foreign ownership in the SUN from 30.26 percent to 30.58 percent.          Yet, the increase in the risk aversion of foreign investors as the global sentiment inclined to experiencing an unfavorable condition reduced foreign funds invested with the domestic financial markets.          According to Difi A Johansyah, the decline was a result of the adjustment made by foreign investors on the position of their portfolio investments in the run up the end of the year.          He said that the developments had impact on the outflow of foreign funds amounting to Rp3.26 trillion. The increase in the profit-taking in the stock market was reflected in the net sale of foreign shares worth Rp3.15 trillion.           This was in line with the increase in the foreign stocks trading activities which reached 44.12 percent of the total stock transactions, exceeding the previous foreign stock trading which was 33.51 percent.          During that period, foreign investment portfolio in the SUN declined by Rp854 billion while in the SBI, it increased by Rp737 billion.          Thus, the foreign share ceiling at the SBI against the total SBI outstanding values increased to 27.48 percent from the previous 17.11 percent while its ceiling with the SUN against the total SUN outstanding figure went down from 30.96 percent to 30.83 percent.          Even though foreign funds in the domestic portfolio investments are showing a downward trend in the runnup to the year end, Indonesia?s better economic performance is expected to attract them back next year.          "Indonesia?s better economic performance will stimulate the entry of foreign funds into Indonesia in 2011," Joko Saptono, head of the economic unit of the Indonesian Stock Exchange (BEI) said in a workshop held in Banjarmasin, South Kalimantan, recently.          He said that there were four countries which were expected to serve as the pillars of the world economic growth after the United States experienced financial crisis that had created a great number of unemployed people.          The four countries are China, India, Brazil and Indonesia, which is viewed as having a good economic growth. Though it has a good economic growth, China has a high rate of inflation which reaches 4.7 percent.          "Compared with the inflation rate in Indonesia, the Chinese one looks small but as a country which usually has an inflation rate between 0.5 and 1 percent,  the 4.7 percent figure exceeds the normal level," Joko said.           The same is true to India whose inflation rate reaches 13 percent, far higher than that of Indonesia. Thus, he said, Indonesia is the only pillar which has no significant problems, and has economic growth reaching 6 percent while its inflation of about 6 percent was still viewed as relatively stable.          This economic condition will stimulate foreign funds to enter Indonesia in 2011.          "This position gives an advantage position because the trust of foreign investors to invest their money in Indonesia would become high," he said.      (T.A014/A/HAJM/13:20/f001) 29-12-2010 13:19:4