Danantara to continue investing in Indonesian stocks after rout

[JAKARTA] Indonesia’s Danantara has instructed asset managers it places funds with to continue buying local stocks this week, the latest step by the government to restore confidence in its beleaguered capital markets.

Danantara has told the asset managers to buy shares of companies with strong fundamentals and liquidity, chief investment officer Pandu Sjahrir said at a meeting on Sunday (Feb 1). The gathering was attended by market participants of local securities companies and asset managers.

The involvement of the sovereign wealth fund has been a major escalation by the Indonesian government after its stock market suffered its largest two-day plunge in nearly three decades. The rout was triggered by MSCI flagging concerns over transparency in South-east Asia’s largest stock market, prompting the government to promise major reforms.

At the heart of MSCI’s concerns is the low free float of Indonesian equities, which critics say increases risks of manipulation and distorts the performance of indexes. Many of the country’s largest companies are thinly traded and controlled by a small number of wealthy individuals.

Reform measures outlined in recent days include a doubling of the minimum free float, the number of shares available for public trading, to 15 per cent starting in February.

At Sunday’s briefing, acting Financial Services Authority chair Friderica Widyasari Dewi said the free float measure would initially apply to initial public offerings, while firms that are already listed will be given a transition period to increase theirs. BLOOMBERG