Robust outlook on Jakarta Islamic Index despite volatile market conditions (BY IFN)

Robust outlook on Jakarta Islamic Index despite volatile market conditions

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INDONESIA: The Indonesian government’s decision to cut fuel subsidies by up to 40%, from the current IDR6,500 (0.66 US cents) to IDR4,500 (0.45 US cents) per liter, coupled with a revived bout of negative foreign investor sentiment towards the republic for the last two days has already sparked a reaction in the Indonesian markets, according to sources. The subsidy cut, which is expected to occur as early as this week or early next week, is expected to most affect banks and issuers with large debt to asset ratios. Despite this, the Jakarta Islamic Index (JII), which comprises of 30 Shariah compliant stocks listed on the Indonesian Stock Exchange (IDX) and was established in July 2000, is expected to fare well and remain bullish. Ernawan Salimsyah, director and chief investment officer at Indo Premier Investment Management, whose Shariah compliant ETF tracks the movement of the JII, says that the Islamic index is expected to perform better than other indexes over the course of the coming months as it excludes banks and companies with more than 45% leverage. “Although there have been no official announcements as yet, we expect the upcoming fuel subsidy cuts to negatively impact the banking sector and companies with high leverage. A spike in inflation is anticipated, followed by an increase in interest rates by Bank Indonesia, which will negatively impact the banking sector and issuers with high debt to asset ratios,” Ernawan told Islamic Finance news. He also added that the country’s first Shariah compliant ETF which was launched in May, the Premier ETF Syariah Jakarta Islamic Index, has seen more than 100% increase in growth since its inception from IDR16 billion (US$1.63 million) to IDR40 billion (US$4.08 million) at present.