The Indonesian financial market, which gained nearly 45 percent in 2010, saw heavy sell-offs earlier this year amid fears over the escalating inflation rate.

The selling pressure continued at least until the middle of March as foreign investors reduced their investments in the country, a trend that also hit other emerging markets. Many global investors eased back their investments in developed countries such as the United States amid signs of recovery in their economies.

Robert Levitt, the founder and chief investment officer of top financial advisor Levitt Capital Management, which manages half a billion dollars in funds, was among many global investors active in Indonesia, selling some of his firm’s $80 million to $100 million investment in the Indonesian financial market earlier this year.

But the story has now reversed itself, with brokerage reports saying “Sell the US, Go Back to Emerging Markets!”, Levitt told The Jakarta Post in an interview during a visit to Indonesia as he shared the story of how global funds were starting to come back to Indonesia. Here are excerpts of the interview:

Question: Do you see the possibility of global funds returning back from emerging markets to developed nations?

Answer: In December, there was a beginning of a fear that markets in the emerging world were going to underperform because of inflation and that you should shift your money to the developed world.

There was a perception in the market because, certainly, when you saw the developed markets go up a lot in January and markets like Indonesia have been going down a lot in January, it forced people to think that maybe we should be pulling out of emerging markets to developed ones.

But the rhetoric in the past week has changed. They are starting to sell the US and go back and buy emerging markets. We believe the story that inflation was going to undo all the gains that had been made over the past two years is simply not true.

What we want to see is what is going on on the ground. Is the country continuing to move in a great direction? And the answer to that question is yes, and we’re going to continue to make more investments.

How do you make sure the investment trend is moving in the right direction?

We invested about $80 to 100 million in Indonesian stocks and bonds. It’s a very high number — almost 20 percent of the funds. So I spent much time in Indonesia, I came here for six months, so it’s a lot of time to spend in one country for me.

Last week, I went up to the Barito River for travel, and then we went to Balikpapan and Samarinda by motorcycle because I wanted to see the development. Since the last time I’ve been there the roads have been fixed, which is a plus point.

After visiting coal regions, we invested more money in the past week in coal firms because some of the companies, for example Adaro Energy, turned out to use the most sophisticated tools and techniques to maximise their operations. Others don’t use sophisticated techniques at all but they still make a lot of money because the spread between what you can sell coal for and what you can buy coal for is so large that it’s really a boom town in Kalimantan.

So those who have left Indonesia as foreign investors or have stopped funding it have probably made a big mistake because the scenario three months ago or in December [when the stock market peaked to all-time highs] is really still in place today yet the prices have become a little bit cheaper.

Other than coal mining, what other sectors in the Indonesian stock market are you investing your managed funds in?

Coal is a big sector for us. Consumer is very big for us as well, companies such as Mitra Adi Perkasa, which is an incredible company. You go to Kalimantan to a very small town and you can see they opened a new sportswear store. If you go and talk to people there they just talk about how great sales are. It’s in a region nobody even considered. So it’s sort of a must-own stock in our portfolio.

We have also been continuing to invest in the media sector, because Indonesia is building brands. Indonesians in general tend to be very brand-conscious. When they find a brand that they start, they support it. And the way to build your brand in Indonesia is over the air television, so SCTV, MNC, RCTI, those are all companies that we own [shares in]. So those for us are the three big sectors.

What are the prospects for the Indonesian financial market this year?

We expect Indonesia will be rated investment grade some time this year, which is another big boost. It will increase investors’ appetites because in a company you can only have an investment grade rating for any company only as good as the country so there may be companies out there that actually deserve higher credit ratings but because Indonesia has a lower credit rating, they don’t benefit. So once the country moves up, the credit rating of most companies will be higher.

There’s a world of literature around the financial business, and sometimes it’s very negative about emerging markets but sometimes it’s very positive. And it is now shifting, the commentaries of the brokerage firms are “sell the US and come back to the growth areas”. So I think, in the short-term at least, the mood of the brokerage world is to come back to invest more money in Indonesia.-by Esther Samboh

http://www.thejakartapost.com/news/2011/04/04/global-investors-start-return-indonesia.html

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