Interest Rate in Indonesia Since June 2005

Performance of Several Capital Markets in the World

Capital Market	Date		Change
	Jan. 2, 2009	Dec. 31, 2009	Points	%
NASDAQ	1632.21	2269.15	636.94	39.02%
DJIA	9034.69	10428.05	1393.36	15.42%
FTSE	4561.8	5412.9	851.1	18.66%
NIKKEI	9043.12	10546.44	1503.32	16.62%
HANGSENG	15042.81	21872.5	6829.69	45.40%
SHANGHAI	1880.72	3277.14	1396.42	74.25%
BOMBAY	9958.22	17464.81	7506.59	75.38%
STI	1829.71	2897.62	1067.91	58.36%
KLSE	894.36	1272.78	378.42	42.31%
IDX	1437.34	2534.36	1097.02	76.32%

Market Indexes Several Capital Markets Around The World

Capital Markets	Jan 2, 2008	Dec 31, 2008	Change		Jan 2, 2009	Feb 6, 2009	Change
			Points	%			Point	%
Shanghai	5262	1820.8	-3441	-65.39%	1880.7	2181.2	300.52	15.98%
Nikkei	14691	8859.6	-5832	-39.70%	9043.1	8076.6	-966.5	-10.69%
Hang Seng	27561	14387	-13173	-47.80%	15043	13655	-1388	-9.23%
KLSE	1436	876.75	-558.9	-38.93%	894.36	896.64	2.28	0.25%
STI	3461	1761.6	-1700	-49.11%	1829.7	1715.4	-114.4	-6.25%
FTSE	6417	4434.2	-1983	-30.90%	4561.8	4291.9	-269.9	-5.92%
NASDAQ	2610	1577	-1033	-39.57%	1632.2	1591.7	-40.5	-2.48%
DJIA	13044	8776.4	-4268	-32.72%	9034.7	8280.6	-754.1	-8.35%
IDX	2732	1355	-1376	-50.38%	1437	1350.6	-86.7	-6.03%

Indonesia Central Bank Cut BI Rate 50 Basis Points

On February 4, 2008 Bank Indonesia cut the BI Rate for 50 basis points. The new rate is 8.25%. This decision is used to stimulate the economics condition of Indonesia in the beginning of 2009. Last week the Bank of England cut the interest rate 50 basis points for the UK interest rate. The new interest rate is 1%.

The decreasing of the interest rate in almost all countries in the world is the respond of the decreasing in global economics condition. The lower interest rate will stimulate the economics especially for manufacturing industry. The lower interest rate will give opportunities to manufacturing industry in making investment. The new investment will give working opportunity to the people therefore will reduce the unemployment.

Government of Indonesia Cuts The Interest Rate

Bank Indonesia the authority of monetary policy on January 7, 2009 cut the BI Rate 50 basis points from 9.25% to 8.75%. The decreasing of interest rate is based on the prediction of the inflation rate on 2009. The inflation rate on 2009 is predicted around 7%. The lower interest rate will gave positive impact to the investment in real sector specially in manufacturing sector. The increasing in investment on manufacturing sector will give positive stimulus to the Indonesia economics.

The Impact of Financial Crisis Capital Market

The impact of financial crisis in US to several capital markets around the world are shown in table below

Capital Markets	2007		2008
	Jan 2 – Dec 31	Jan 2 – Nov 30	Jan 2 – Nov 30
US	6.335%	7.192%	-32.313%
UK	2.313%	1.927%	-33.174%
Jepang	-11.789%	-9.641%	-44.393%
Hongkong	36.939%	41.031%	-49.608%
China	96.659%	82.091%	-64.513%
Singapura	14.635%	15.917%	-49.943%
India	45.507%	38.881%	-55.570%
Malaysia	29.357%	25.055%	-39.670%
Indonesia	49.513%	46.382%	-54.547%

The Impact of Lehman Brothers

The bankruptcy of Lehman Brothers gave negative impact to capital markets around the world. The table below shows those impact after three weeks.

Capital Markets	Sept 15-Oct 10, 2008
US	-22.59%
UK	-24.44%
China	0.70%
Jepang	-28.71%
Taiwan	-15.23%
Hongkong	-19.15%
Korsel	-10.54%
India	-22.20%
Singapura	-20.85%
Malaysia	-9.46%
Indonesia	-15.56%
average	-17.09%

Kenaikan Suku Bunga SBI dan Portofolio Investasi

Pemerintah telah menaikkan suku bunga SBI menjadi 8,75%. Kenaikan ini adalah yang kedua kalinya setelah pemerintah mengumumkan kenaikan harga BBM. Kenaikan suku bunga SBI ini sebagai upaya untuk mengantisipasi tingginya tingkat inflasi sebagai dampak dari kenaikan harga BBM.

 

Kenaikan ini akan memicu kenaikan suku bunga pinjaman/kredit perbankan. Hal tersebut tentu saja akan berdampak pada sektor riil dan kegiatan investasi. Sektor perumahan juga akan menerima dampak kenaikan suku bunga SBI ini karena kenaikan suku bunga SBI akan menaikkan suku bunga KPR yang akan berdampak pada turunnya daya beli masyarakat akan produk-produk perumahan.

 

Kegiatan investasi juga akan mengalami perubahan khususnya dalam portofolio investasi. Kenaikan tingkat suku bunga SBI yang merepresentasikan tingkat suku bunga bebas resiko akan menyebabkan perubahan portofolio investasi. Secara singkat dapat dijelaskan bahwa kenaikan tingka suku bunga SBI akan menggeser garis CML (Capital Market Line) yang menyebabkan pergeseran titik singgung garis CML dengan kurva batas portofllio efisien (efficient frontier). Titik singgung antara CML dan efficient frontier menyebabkan perubahan portofolio investasi yang optimal. Untuk itu bagi para investor harus bersiap untuk melakukan revisi dan perubahan portofolio investasinya 

The Evolution of Financial Management

• Early 1900 : instrument, institution, and procedures of capital market and money market
• Around 1920 : focus on security and banking sector, and investment in common stock
• Around 1930 : focus on liquidity, debt, regulation, bankruptcy, reorganization
• Early 1940 and 1950 : internal analysis, planning and controlling cash flow
• End of 1950 : capital budgeting, valuation, and dividend policy
• Around 1960 : development of portfolio theory
• Around 1970 : CAPM model and APT model that can be used to value the financial assets
• Around 1980 : focus on uncertainty, asymmetric information, financial signaling
• Around 1990 : multinational financial management, behavioral finance, enterprise risk management, good corporate governance

Stock Valuation

 Stock valuation is important part on investment decision. The stock valuation is used to get the intrinsic value or fair value of stock. The information about intrinsic value will be used to decide whether we want to buy or to sell the stock.

There are two ways to calculate the value of stock. The first is using discounted cash flow (DCF) model and comparable multiple approach. The DCF model is based on present value calculation. The value of stock is the present value of expected future cash flows. In investor point of view the cash flows are dividends received from the company and the capital gains/loss.

The comparable multiple approach use the financial ratios to calculate the value/price of stock. The examples of this approach are EBIT Multiple, EBITDA Multiple, Market to Book Value Multiple, and P/E Multiple. When we want to use this approach we must have information about financial ratios from industry or benchmark firms. This approach has several pros and cons.

Pros of multiple approaches:

• Convenient
• Reflects what the market is willing to pay for a comparable firm
• Particularly helpful when firm is not in steady state

Cons of multiple approaches:

• Ignores need to make explicit assumptions regarding long-term profitability and growth
• Subject to market misevaluation
• Subject to accounting distortions
• A relative (rather than absolute) valuation measure
• Difficulty in identifying comparable firms
• Meaningless with negative values
• Denominator may be more cyclical than numerator