Indonesia’s high overall economic growth of 6.5 percent amid a painful global economic downturn, low inflation rates of about 4 percent, low public debt levels of only 26 percent of the nation’s gross domestic product (GDP) and high foreign exchange reserves of more than US$110 billion have attracted global funds to continue investing here, analysts said.

The IDX’s market capitalization rose almost 8.9 percent to Rp 3,537 trillion by year-end after 25 companies floated shares in initial public offerings (IPO), raising Rp 19.6 trillion to fund business expansion.

“If troubles in Europe had not worsened, I am certain that our stock index performance could be better, so there was an impact from the eurozone’s negative sentiment upon our market,” Bank Mandiri chief economist Destry Damayanti said.

The stock index began 2011 struggling to reach its starting point as rising inflation triggered massive stock sell-offs throughout the first quarter. Once the inflation issue had apparently been contained, the JCI rose through the second quarter to an all-time high of 4,193 in August.

Standard & Poor’s downgrade of the United States’ triple-A sovereign debt rating, however, shook the market heavily, pressuring the JCI down by 27 percent from its record peak to a year-low level by the end of the third quarter.

The index began to recover during the last quarter, but failed to rally as persistent negative news from Europe turned gains on the JCI flat.

“The solution is that the government must be able to spur growth in the real sector, especially with the domestic market base. Banking, construction [cement] and consumer goods stocks could be interesting picks for the future.”

Domestic-oriented indexes such as miscellaneous industries, trade, manufactures, consumer goods and property managed to book double digit gains this year, while finance and basic industry were mostly flat and export and foreign-related sectors such as infrastructure, mining and agriculture indexes performed the worst.

That trend might continue for the year 2012 because of the high-level of global uncertainty could drag down exports and shift growth sources to domestic-oriented sectors in Indonesia’s consumption-reliant economy, said Danareksa Sekuritas analyst Chandra Pasaribu.

“In the first and second quarter, investors would still likely be in a wait-and-see mode because global funds are suffering losses from Europe, which must be recovered. Until their losses have been recovered, investors would not dare buy risky assets,” Chandra said.

“Risk appetites might strengthen in the third quarter,” he added, expecting the stock index to trade at above 4,000 in 2012.

Mega Capital Indonesia head of research Danny Eugene was a bit more bullish, seeing the JCI rallying up to 4,765 considering Indonesia’s strong fundamentals.

The expected rating upgrade from S&P and Moody’s Investors Service to investment status, after Fitch Ratings already did so, would also boost capital inflows during the early quarters of 2012.

Foreign investors pumped a net Rp 24.8 trillion into Indonesian stocks this year, up from Rp 21 trillion in 2010.

Bonds completed a third annual advance as the nation’s relatively high yields and an improvement in its debt rating to investment grade attracted international investment.

Finance ministry data shows that foreign ownership of sovereign debt rose 13.5 percent to Rp 222.9 trillion ($24.5 billion) this year as of Dec. 28. Fitch Ratings raised Indonesia’s long-term foreign and local-currency credit ranking on Dec. 16 to BBB-, the lowest investment grade, citing economic strength that could help the nation withstand faltering global growth.

“Indonesia was a darling for foreign investors this year,” said Enrico Tanuwidjaja, a currency strategist at Malayan Banking Bhd. in Singapore, told Bloomberg.

“Indonesia was largely safe from global turmoil.”

The yield on the government’s benchmark 8.25 percent notes due July 2021 fell 180 basis points, or 1.80 percentage points this year to 5.96 percent today, according to midday prices from the Inter-Dealer Market Association.

The rupiah slipped 0.7 percent in 2011 to 9,081 per dollar as of 3:15 p.m., its first annual loss since 2008, according to prices from local banks compiled by Bloomberg. The currency was down 0.1 percent Friday.

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