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provide Indonesia with perfect ingredients for a thriving mutual fund industry.
Despite quickly-rising personal incomes, however, only relatively few Indonesians
are active investors, while the vast majority prefers to stash their savings in a bank
account, if not in their homes. The experience of the Asian financial crisis in 1997,
which sparked the collapse of numerous Indonesian banks and eventually of the
Suharto regime as well, goes some way to explain savers' misgivings about
investing in rupiah assets. Hence Indonesia's funds industry is relatively small. Over
the past years, however, an extended period of financial stability under the
stewardship of Bank Indonesia and the Finance Ministry has begun to restore
confidence in Indonesia's capital markets.
Overview of Indonesia's Mutual Fund Industry
Market penetration should also improve as banks, the primary channel for
mutual fund distribution to retail clients, extend their branch networks outside
Jakarta, where many customers have only a limited range of investment options
Global investment companies, therefore, are reassessing opportunities to
manage Indonesians' growing wealth. While unfavorable regulations have been
cited as one of the reasons for the cautious approach foreign fund operators have
been taking on the Indonesian market so far, the long-term potential appears to be
immense amid rising demand from individual and institutional investors.
A small market with some big players
The number of mutual funds in Indonesia is on the rise, even though the
volume of assets they hold has shown a less consistent trend in recent years. The
combined net asset value (NAV) of mutual funds rose to 209.51 trillion RP as of June
27, 2014, up from 192.54 trillion RP at the end of 2013, but down from the 2012
level, data from the Financial Services Authority (OJK) show. Equity-based funds
account for almost half of the market (90.16 trillion RP), followed by fixed-income
funds (30.2 trillion RP) and mixed-asset funds (18.34 trillion RP). Protected funds
amounted to 42.8 trillion RP, while foreign-exchange funds totaled 16.1 trillion RP.
Sharia-compliant funds increased to 9.17 trillion RP as of 27th June 2014.
Indonesia's mutual fund industry remains small compared to that of other countries
and vis-a-vis the domestic banking sector, which represented almost 80% of total
financial system assets in December 2013 (Financial Stability Board). In fact, the
entire financial sector is relatively small with assets equaling 72% of GDP in 2013.
This leaves ample room for growth.
Only a few foreign companies are active in Indonesia, but together they
command a dominant market share. These include Schroders, BNP Paribas, Manulife
Asset Management and First State Investments (Commonwealth Bank of Australia).
Foreign interest in the local market is growing, as exemplified with East spring
Investments (Prudential plc) entering in summer 2012 and Kuala Lumpur-based
Strong economic growth, low public debt and rising disposable incomes in
Southeast Asia's largest economy allow for increased savings
A young and growing population creates the need to build financial reserves
for children's education, retirement and unforeseen events
Growing awareness about the benefits of investing should generate demand
among well-educated Indonesians, many of whom worry about inflation
eating away at their savings amid unattractive bank interest rates
Assets of insurance companies and pension funds are rising, as more
Indonesians seek to secure their standard of living. Insurance market
penetration is low but rising, suggesting a growing pool of assets that needs
to be managed
In the long run, the opportunities of Indonesia's maturing fund market should
easily outweigh the challenges. More than anything else, the enormous potential