Bryan Lee – The bomb blast in Jakarta earlier this week may have left several dead and many injured, but investor sentiment in Indonesia seems to have been largely unscathed.
Fund managers cited a host of reasons that work in favour of the Indonesian market. Among them: A huge market, a country with vast resources and cheap stock valuations.
They were also quick to point out that the benchmark Jakarta Composite Index, which had slipped 3 per cent to 489 points on the day of the bombing, has since more than made up for the dip by rising 3.4 per cent to 505 points.
As for the fallout of the bomb blast itself, fund managers said that they had come to accept that such risks were part and parcel of investing in Indonesia.
Said Mr Tan Aik Chye, a fund manager with AIB Govett: "I didn't flinch compared with the Bali bombing ... We've been conditioned to this sort of risk already ... It's nothing out of the ordinary." Mr Tan, who has holdings in Indonesia's telecommunications, tobacco and banking sectors, said that unlike the Bali blasts which killed more than 200 people, Jakarta was less of a shock.
APS Asset Management portfolio manager Ho Kok Hua agreed: "People were less alarmed this time around as it is not the first time – unlike when it happened in Bali." He added that by and large, investors in Indonesia had come to accept that terrorism would be a consistent threat for some time to come.
Indeed, fund managers told The Straits Times that since the Bali incident, investors had already incorporated higher risk premiums when evaluating their Indonesian ventures. Explained Aberdeen Asset Management's Mr Chris Wong: "You just have to factor in this worst-case scenario, which is not unexpected and is very much a possibility."
The Bali disaster also taught investors a few lessons. Said APS' Mr Ho: "Just looking back at the Bali blast, that did not have any long-lasting effects. Those who had panicked and sold their stock eventually lost out." This time around, investors had become wiser, he said.
Ultimately, fund managers are finding the buoyant long-term prospects of the Indonesian market too hard to resist. Aberdeen's Mr Wong said: "You've got to take a long-term view of Indonesia. The macroeconomy indicates that interim setbacks will not deter from the bigger story, which is a very big market with lots of resources." Mr Ho added: "The valuation of Indonesian stocks is still very cheap at the moment, even after adding in risk premiums." Also, with signs of a global economic recovery becoming more real, investors were becoming more willing to put up with more risks in view of the greater upside, AIB's Mr Tan said.
And the greatest of these risks may not necessarily be in the form of terrorism. APS' Mr Ho said: "I'm more put off by corporate-governance problems in Indonesia than the terrorism threat." Corporate governance refers to issues relating to shareholder rights and management transparency.