T

he nation’s stock market will benefit greatly from the expected upgrade in Indonesia’s sovereign debt rating next year, further increasing the benchmark share price index by at least 15 percent, securities analysts estimated.

Good fiscal strength and macroeconomic stability would provide Indonesia with an improvement of its sovereign debt rating to investment grade, Ari Pitoyo, a securities firm’s head of equity research, said in Jakarta on Wednesday.

The improvement to investment grade would make Indonesia’s stock market more attractive to foreign fund managers, he said.

Mandiri Sekuritas predicted the Jakarta Composite Index (JCI) would close this year at 3,800, and that the benchmark stock index would grow to 4,350 to 4,500 next year.

The JCI had gained 40.58 percent as of Wednesday, one of the best performances among major global indexes.

“If it reaches 4,350 the PE [price-to-earnings] ratio will be about 16 times, about the same as it was before the 1997 Asian crisis,” Ari told reporters. He added that Indonesia was also rated investment grade before the crisis.

The commodities sector, according to Ari, will remain one of the most attractive sectors next year, as commodities prices are expected to continue soaring in 2011.

“Next year, investors need to be smart about which stock they invest in. This year, you could invest your money in any stock and it would grow, but next year will be more stock-based instead of index-based like it was this year,” he added.

Thanks to the improvement of the country’s economic fundamentals, Mandiri Sekuritas is confident that major rating agencies will upgrade Indonesia’s rating to investment grade in 2011.

“Our debt to GDP ratio has, for example, improved significantly. With the nation’s ability to pay back loans, investors will trust our country,” economist Aldian Taloputra said at the press briefing.

The bank’s chief economist Destry Damayanti said the possibility of receiving an investment grade rating could be hampered by non-economic factors such as corrupt practices.

“Economy-wise, we are stable. While other countries are bleeding, we’re under control. We deserve an investment grade right now,” she said after the briefing.

The Japan Credit Rating Agency raised Indonesia’s sovereign debt rating to investment grade in July, a move that could be followed by major rating agencies, reflecting growing confidence in the management of Southeast Asia’s largest economy.

Fitch Ratings, according to Destry, will likely become the first to follow suit in giving Indonesia the investment grade as it already rates the country one notch below investment grade.

The move would likely be followed by Moody’s Investors Services and Standard & Poor’s (S&P), which have Indonesia rated two spots below investment grade, she added.

“It’s possible for them to upgrade ratings twice within a year. S&P’s number-one concern is the lack of infrastructure, which needs more attention,” she added.

Moody’s recently announced a review for a possible upgrade on Indonesia’s credit rating to one notch below investment grade, thanks mainly to improvements in the country’s economic resilience, the government’s debt position and the central bank’s foreign currency reserve adequacy.

An investment grade indicates that a bond has a relatively low risk of default.

Due to the possible rating hike to investment grade, Mandiri Sekuritas analysts agreed that foreign funds will continue to
flow into the country’s stock and debt markets next year, resulting in a stronger currency rate.

Mandiri Sekuritas sees the rupiah to appreciate to Rp 8,762 against the US dollar by the end of the year and Rp 8,819 on average throughout 2011.

“We predict foreign investors will buy government bonds worth between $2 to $3 billion next year, lower than the $10 billion in 2010,” said Handy Yunianto, the securities firm’s debt market analyst. (est)