The valuation of the Composite Stock Price Index (Index Harga Saham Gabungan / IHSG) as of September 23 was below the fair value, according to several capital market analysts. Based on data compiled by Bloomberg, the Index’s price to earning (P/E) ratio reached 14.96, its lowest since 2010.
Danny Eugene, Head of Research of PT Mega Capital Indonesia, said that the valuation is still higher compared to during the 2008 monetary crisis. However, the depreciation of more than 12 percent in the past week has decreased the P/E drastically. Within the last decade, except in 2008, it stood at around 16.00 to 24.00.
“The Index's appreciation in last weekend's trade closing does not mean that it will rebound,” he said. On Friday’s trade, it was closed at 3,426.24, a 1.7 percent increase from the previous trade closing.
Investors should take advantage of the momentum and enter the market as the fundamental performances of local publicly-listed companies are still strong, and the third quarter financial statement could be still positive, according to Danny.
Indonesia’s economic growth is supported by domestic consumption, making it unaffected by global economic deceleration, according to Andi Ferdinand, analyst of PT Batavia Prosperindo Sekuritas. In the 2008 and 2009 crisis, Indonesia still booked a positive economic growth.
Moreover, Indonesia's export to Europe and the US is only 13.4 and 10 percent, respectively, compared to Asian market's at more than 50 percent. Hence, the IHSG may toughen in the near future. "This is also helped by the bailout fund for Greece which be granted soon, coupled with the positive sentiment from the third quarter financial statements of local companies," he said.
Indonesia also has a better risk management system than in 2008, according to Edwin Sinaga, Chief Director of PT Financorporindo Nusa. Furthermore, the government is equipped with a more ready crisis management protocol.
Domestic Consumption
Erlangga Mantik, Deputy Coordinating Minister of Macro Economic Affairs, said that Indonesia is strong enough to face the crisis, with an economic growth averaging six percent. Moreover, the country will rely on the consumption of its 238 million population to support the growth. The government has been maintaining public purchasing power by raising investments, exports and the consumption rate.
Meanwhile, decreasing exports to the European Union and the US can be compensated by the strong trade with the ASEAN and other Asian countries, according to Lana Soelistianingsih, economist of PT Samuel Sekuritas Indonesia.
In the financial sector, Bank Indonesia can intervene with the bond market and restrain the volatility of the rupiah as foreign exchange reserves have significantly reached US$ 122 billion.
Cristine Lagarde, Acting Director of the International Monetary Fund, said that the current global crisis can be overcome by creating a global trade balance. However, this has been suggested in 2008, through the depreciation of the Chinese yuan against the US dollar. The Chinese government is likely to go against the idea as it may decrease the country's export competitiveness, according to Latif Adam, Economist of the Indonesia Institute of Sciences.
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