Indonesia’s central bank is starting to get freaked out about the stellar performance of Indonesia’s stock market.
The head of the central bank’s economic research is worried that Indonesia, like many emerging markets, might be the victim of developed world fund flows, which have partly shunned markets such as the U.S. in favour of perceived emerging markets strength.
Thus valuation are completely unjustified, for the central bank. Which to central bank seems to mean they should be unjustified for everybody since they are now even talking about pricking the bubble:
“The actual stock price now is actually exceeding the fundamental value,” Perry Warjiyo, who was a member of the International Monetary Fund’s executive board before taking his current post in July 2009, said in an interview in Jakarta. “Whatever methodology we use” shows an excess valuation, he said, citing Bank Indonesia studies over recent months.
“There is a bubble going on,” Warjiyo said in the interview in his office yesterday. Bank Indonesia’s analysis shows the peak of the overvaluation was in July, with part of the deceleration owing to improved economic fundamentals, he said.
Bank Indonesia board members last year discussed the risks posed by an influx of foreign funds, and the bank studied the feasibility of imposing capital controls, Warjiyo said. For now, the bank is “confident” Indonesia can cope. Should they be applied, any capital controls would be “temporary,” he said.
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