The local stock market has garnered Rp 13.8 trillion (US$1 billion) in foreign funds since the Tax Amnesty Law was launched less than a month ago, in what could be a boon for banks and construction-related firms.

The buying mood has been backed by investors’ confidence that the stock market will benefit from the government’s tax amnesty program, which is expected to draw in billions of dollars by pardoning past tax crimes in exchange for low penalty rates, analysts say.

The billion-dollar net foreign buy in the local stock market happened between June 27, one day before the passage of the Tax Amnesty Law, and Thursday, pushing up the value of Indonesian stocks bought by foreign funds to Rp 21.88 trillion so far this year.

During the period, the Jakarta Composite Index (JCI) benchmark stock index surged 7.88 percent, contributing more than half of the gains made so far this year of 13.59 percent and also breaking a new psychological level of 5,000. The index closed on Thursday at 5,216.97.

Investors who rushed into the bourse were frontrunners who expect even more funds to flow into the stock market as an effect of the tax amnesty, said Universal Broker Indonesia head of research Satrio Utomo.

“They expect repatriated funds from the tax amnesty program to enter the market so they have pushed their capital into it earlier,” he said, adding that the current fund inflow figure was nothing compared to what would enter the market once repatriation started.

The government expects to welcome Rp 1 quadrillion previously stashed overseas by wealthy Indonesians through the tax amnesty, which requires repatriated assets to be locked in Indonesia for three years in investment instruments such as the stock market and bank deposits to infrastructure projects.

On top of that, three state banks Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Raykat Indonesia (BRI), along with private lender Bank Central Asia (BCA), signed contracts with the Finance Ministry to become gateway banks for the repatriation during the program dissemination in Central Jakarta.

Around 18 banks have expressed their willingness to be gateways for the repatriated amnesty funds, but they have to sign contracts with the Finance Ministry before being appointed to do so.

This has further fueled gains in banking stocks that will be in charge of managing funds repatriated from overseas. So far this month, since the Tax Amnesty Law was announced, five banking blue chips were listed among the top 10 movers in the market, including BCA (up 27.9 percent), BRI (15.9 percent) and Bank Mandiri (12.9 percent).

“We recommend the banking, property, construction and consumer goods sectors,” said Koneksi Kapital analyst Alfred Nainggolan, expecting the index to end the year at 5,400 to 5,500. “Our choices are a little bit antimainstream because we recommend second- and third-tier stocks.”

To tap into the opportunities of positive stock market development on the back of the tax amnesty, the Indonesia Stock Exchange (IDX) is set to offer discounts, on top of cutting the initial listing fee, during the amnesty period to lure funds onto the stock market.

The local bourse will have the capacity to trade up to Rp 200 trillion in transactions per month, he added.

“The market is always driven by expectations. After these gains, investors will wait for the amnesty realization. If it is in line with their expectations, the index will continue its rally. If it doesn’t, it will be corrected,” said Investa Saran Mandiri analyst Hans Kwee, who predicted the JCI would end the year between 5,400 and 5,700. (mos)

---------------

To receive comprehensive and earlier access to The Jakarta Post print edition, please subscribe to our epaper through iOS' iTunes, Android's Google Play, Blackberry World or Microsoft's Windows Store. Subscription includes free daily editions of The Nation, The Star Malaysia, the Philippine Daily Inquirer and Asia News.

For print subscription, please contact our call center at (+6221) 5360014 or subscription@thejakartapost.com

Popular

Is Indonesia really ready to embrace dual citizenship?

Tens of thousands seek better lives in Jakarta. But is the city losing its draw?

Elon Musk's Starlink granted licences to operate in Indonesia