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Market Highs Sign Indonesia is in a Bubble: Central Bank
Indonesia’s stocks are in a bubble and officials are prepared to put controls on capital inflows if needed to maintain financial stability, according to the head of the central bank’s economic research and monetary policy division.
“There is a bubble going on,” said Perry Warjiyo, who was a member of the International Monetary Fund’s executive board before taking his current post in July 2009, in an interview on Wednesday. “The actual stock price now is actually exceeding the fundamental value.”
“Whatever methodology we use” shows an excess valuation, he said, citing Bank Indonesia studies over recent months.
Indonesia’s experience is echoed across emerging markets that are benefiting from international capital flows shunning slow-growing advanced economies. Brazil imposed a tax on foreign funds last year, while central banks from China to India have ordered their banks to hold more of their assets in reserve and India and Malaysia have raised interest rates.
The Jakarta Composite index declined 1.7 percent on Thursday to close at 2,850.83, falling from a record close of 2,898.58 on Wednesday.
Indonesia’s stocks are in a bubble and officials are prepared to put controls on capital inflows if needed to maintain financial stability, according to the head of the central bank’s economic research and monetary policy division.
“There is a bubble going on,” said Perry Warjiyo, who was a member of the International Monetary Fund’s executive board before taking his current post in July 2009, in an interview on Wednesday. “The actual stock price now is actually exceeding the fundamental value.”
“Whatever methodology we use” shows an excess valuation, he said, citing Bank Indonesia studies over recent months.
Indonesia’s experience is echoed across emerging markets that are benefiting from international capital flows shunning slow-growing advanced economies. Brazil imposed a tax on foreign funds last year, while central banks from China to India have ordered their banks to hold more of their assets in reserve and India and Malaysia have raised interest rates.
The Jakarta Composite index declined 1.7 percent on Thursday to close at 2,850.83, falling from a record close of 2,898.58 on Wednesday.
