Indonesian state-owned fund ready to boost investment on new freefloat norms

By Stefanno Sulaiman and Gayatri Suroyo

JAKARTA, Feb 11 (Reuters) - Indonesia's state-owned social security fund is ready to beef up investment in equities, its investment director said on Wednesday, as the stock exchange prepares to double minimum free floats, following recent dramatic market plunges.

Stocks in Indonesia have lost about $120 billion in market value since index provider MSCI flagged last month the risk of a downgrade to frontier market status as available market data obscures stock ownership and trading practices.

"Buying stocks is essentially a vote of confidence for the economy," said Edwin Ridwan of BPJS Ketenagakerjaan, the fund which is one of Indonesia's biggest institutional investors, managing assets worth 900.7 trillion rupiah ($53.69 billion).

"We are confident that Indonesia's economy, compared with other economies ... is still good, with our demographic bonus and abundant natural resources," he told Reuters in an interview.

Confidence in Southeast Asia's biggest economy has waned in recent months as investors have grown wary about President Prabowo Subianto's high-growth target and its impact on fiscal health and central bank independence.

As part of reform measures to tackle MSCI's concerns, Indonesia plans to raise the minimum level of free float, or freely tradable stocks, to 15% eventually, from 7.5% now.

The plan to buy some newly issued stocks with strong fundamentals is in line with the fund's target to raise stock market exposure to up to 25% by 2028, Edwin added.

During the recent index plunge, the fund bought stocks of companies with large market capitalisation, big banks among them, after they became cheap, he said, but gave no details.

Indonesia's long-term economic prospects are supported by the importance of its commodities for global technology expansion and as firms relocate out of China, he said.

Companies may have to offer some $12 billion worth of new shares to meet the new free float requirement, data from the Indonesia Stock Exchange (IDX) showed, which is likely to be a challenge in a relatively shallow market.

There was adequate liquidity from institutional investors, such as BPJS, as well as the potential return of foreign investors, Edwin added, however.

About 8.5% of BPJS assets are in stocks and 4% in equity mutual funds, which means it could have 140 trillion rupiah more to invest if it were to step up equity exposure to 25% this year, he said.

Following MSCI's warning, ratings agency Moody's downgraded bond-rating outlooks to negative for the government and companies on concerns over policy consistency and credibility.

More than 3/4ths of BPJS assets are invested in government bonds, but Edwin said he was certain the government would keep its annual budget deficit below a statutory cap of 3% to ensure fiscal prudence, warming sentiment among global investors.

($1=16,775 rupiah)