Composite index to rise by 30%: IDX

Novia D.Rulistia, The Jakarta Post, Jakarta

Supported by an expected array of favorable domestic economic conditions in 2008, the Indonesia Stock Exchange (IDX) is optimistic its composite index can soar by as much as 30 percent.

While optimism runs high, the IDX remains vigilant as estimated index growth is much lower than last year's 52 percent, mainly due to jitters over a possible U.S. economic recession.

"The growth is estimated to reach about 20 to 30 percent this year. That would increase the index to a range of between 2,400 to 3,600," IDX president director Erry Firmansyah said Thursday.

He believes the growth may even exceed the estimate should external factors improve, such as strengthening of economic conditions in the U.S. or global oil price stability.

On the domestic front however, issues related to security and political upheaval in the leadup to the election may negatively impact movement of the index, he said.

"If circumstances deteriorate, the index may drop to 2,400," he said.

Last year, the index closed at 2,745, a 58.69 percent increase in market capitalization to Rp 1,982 trillion (more than US$200 billion) from Rp 1,249 trillion in 2006.

Erry said trading value and overall volume also improved significantly.

At the end of January this year, trading value reached Rp 6.18 trillion, up from Rp 4.7 trillion for the same period of the previous year. Trading volume increased to 4.2 billion shares from 3.7 billion shares a year earlier.

The growth in the index may also be fueled by higher potency of earnings, as the price to earnings ratio (PER) for shares in Indonesia is still considered low in comparison to other countries.

Shares traded on the IDX have an average PER of 16.92 percent, far lower than the 17.7 percent in Malaysia, 17.97 percent in Singapore, and 19.02 percent in the U.S.

"The PER in Indonesia is still attractive for investors, so there will be an opportunity for future growth," said Erry.

Since last November's merger of the Jakarta and Surabaya Stock Exchanges, the IDX has 382 listed companies. The bourse estimates 30 more companies will go public this year.

During the first quarter of this year, the IDX expects to have eight initial public offerings (IPOs). Two of these will be for Bank BTPN and Bank Jabar, he said.

Lower central bank benchmark interest rates will fuel more expansion in the private sector. This is expected to provide more opportunities for companies to go public.

To date movement of the IDX has been dominated by five large companies. Finance Minister Sri Mulyani recently expressed her concerns over the problem, saying the bourse needed to attract more companies into the stock market so that it could become an accurate tool for assessing the country's economy.

The government recently introduced a 5 percent discount tax incentive for companies willing to go public by selling 40 percent or more of their shares.