The trading floor of the Indonesia Stock Exchange (IDX). (JP/Wienda Parwitasari)

Foreign investors have started investing in Indonesia’s capital market thanks to the more stable condition of the country’s economy.

This month, foreign investor net purchases in the regular market have totaled Rp 2.72 trillion (US$192.02 million), compared to Rp 4.52 trillion over the last three months.

Foreign investors have also started to buy government bonds. The Finance Ministry recorded that foreign investor ownership of sovereign debt papers (SBN) reached Rp 984.24 trillion as of June 25, compared to Rp 34.68 trillion at the end of May.

Securities firm Samuel Sekuritas research head Suria Dharma said increased capital inflows was a sign of the Indonesian economy’s increased stability compared to last year. He also cited external factors, particularly the dovish stance of the United States Federal Reserve, which had encouraged investors to put their money in risk assets.

However, the Jakarta Composite Index (JCI) is still in a consolidation period, as market players wait for a Fed Fund rate cut, Suria said, as quoted by, adding that if the Fed cut its rate and the US-China trade negotiations ran smoothly, the JCI could jump to 6,800.

However, Samuel Sekuritas senior analyst Muhammad Alfatih warned that the robust capital inflow into Indonesia’s market was not without risk, as hot money could easily leave the country.

UOB Indonesia Enrico economic and research head Tanuwidjaja added that the high portion of foreign ownership of SBNs was a double-edged sword.

“Funds from foreign investors can help state financing and stabilize the rupiah,” he said, but warned things could boomerang as the funds could flow out of Indonesia at any time. (bbn)

Source “TheJakartaPost”