Our 2nd Assignment “Equity of Beta”

COMPANY PROFILE

PT Barito Pacific Tbk established on 1979 under the name of PT Bumi Raya Pura Mas Kalimantan. The Company started out as a wood based company. Barito Pacific is one the pioneers of sustainable HTI (Hutan Tanaman Industri), the Indonesian term for industrial forest estate). With this first truly sustainable industrial, timber estate operation in Indonesia at the time, The Company quickly built a reputation for being one of the early environmentally focused wood-based companies to emerge from Asia.
In 1993, the Company listed its shares on the Jakarta and Surabaya Bourses (recently merged to become the Indonesia Stock Exchange IDX). The result of this listing used by the Company to embark on a massive industrial forest plantation development programs and to secure sustainable supply of logs to feed supply the Company’s wood processing mils. At the time, the Company had 5 processing mils altogether, producing plywood, blackboards, particle boards and woodworking products for exports to Europe, Asia, and America.

Company and LQ45

PT Barito Pacific Tbk also included into LQ45. As we know, LQ45 is a market capitalization value of 45 most liquid stocks in Indonesia Stock Market (IDX). In my own words, LQ45 is association of 45 type of stocks that most responsive in the market. To included in LQ45 there are some criteria to fulfill, such as:
• Included in the top 45 companies with the highest market capitalization in the last 12 months
• included in the top 45 companies with the highest transaction value in a regular market in the last 12 months
• Have been listed in the Indonesia Stock Exchange for at least 3 months
• Have good financial conditions, prospect of growth and high transaction value and frequency
PT Barito Pacific Tbk are already fulfill those requirements and listed in LQ45 since period of august 2006-january 2007. Recently, LQ45 has newcomers but PT Barito Pacific Tbk still exists because they still can prove their performance through the year.

ANALYSIS
Stock return and risk is an important thing when you buy or maybe study about stock. Stock return represented by capital gains/losses that calculated by the movement of stock prices. Market Return represented by gains/losses of market that calculated by the movement of market indexes (Indonesia Composite Index and LQ45 Index). The risk calculated by the deviation standard of stock return and market return.
Stock price index is an indicator that shows the movement of stock prices. Market index is a measure of the investment performance of overall market. Index has function as an indicator of market trends, which means the movement of the index describes market conditions at any time, whether the market is active or weak. Index will help us to know the trend of stock price movement today; whether it is rising, steady or falling. The movement of the index becomes an important indicator for investors to determine whether they will sell, hold or buy one or several shares because stock prices have quickly movement. In Indonesia Stock Exchange, there are 6 (six) types of indexes, but we will concern only in two types following:
a. Indeks Harga Saham Gabungan (IHSG), using all of the shares listed as a component of the index calculation.
b. LQ45 Index, index consists of 45 active stocks with reference to trading liquidity variables and market capitalization. Every 6 months there are new stocks coming into the LQ45.

When investors buy a stock, their return comes into two forms. There are dividend and capital gain or capital losses. Capital gain or capital losses can we see when the return is positive or negative. When the return is positive, it will be capital gain. When the return is negative, we can call it as capital losses.

Daily Stock Return

For example, we choose one of the data. In March 19, 2010, we can see the return stock was 0.007518797 or 0.75 %. Therefore, we can say that the return was positive and it is good for companies that have a positive return, investors will be trust to the company. Actually, that was a daily, so it was not wise if we judge the company by their one-day performance. If we looked at the data one day after we can saw that the return was negative. The return at 12 March was -0. 02272 or -2.2 %. It is not good if you have a negative return. Therefore, we cannot judge the performance of the company if we do not already looked at the average performance.
Daily Market Return
First of all, lets we look the daily market return in LQ 45 in the same day in 19 March 2010. Market index also shows the positive market index that was 0.001633935 or 0.16 %. Therefore, we can say that in this day the movement of the stocks in LQ 45 that is covers almost 70 % the sales of stock in Indonesia is almost positive.

Beta(β)
We found a lot definition of beta(β) we still confuse of the meaning. After we elaborate all of those meaning and add from the internet also we decide the best definition that most suitable at least with our thought. Beta, or the beta coefficient, measures the correlation between an investment’s value and movements in the overall market. A high beta implies a stock price grows dramatically when the market is up, and falls dramatically when the market goes down. Small values of beta mean the stock price is relatively unaffected by the swings in the overall market.
Aggressive stocks have high betas, betas greater than 1.0, meaning that their returns tend to respond more than one-for-one to changes in return of the overall market. The betas of defensive stocks are less than 1.0. The returns of these stocks vary less than one-for-one with market returns. The average beta of all stocks is-no surprise here-1.0 exactly.
Because Beta is a comparison to the overall market, a benchmark or baseline representing the overall market is needed – usually, the S&P 500 is used, although betas can also be calculated against industry-specific indices. Precise methods for calculating Beta can differ.
In finance, the beta (β) of a stock or portfolio is a number describing the relation of its returns with that of the financial market as a whole.

The beta coefficient is a key parameter in the capital asset pricing model(CAPM). It measures the part of the asset’s statistical variance that cannot be mitigated by the diversification provided by the portfolio of many risky assets, because it is correlated with the return of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index.

Capital Asset Pricing Model (CAPM)
CAPM is the theory of the relationship between risk and return which states that the expected risk premium on any security equals it beta times the market risk premium. The simple interpretation of CAPM is the expected rates of return demanded by investors depend on three things:
1. The pure time value of money. As measured by the risk-free rate , this is the reward for merely waiting for your money, without taking any risk.
2. The reward for bearing systematic risk .As measured by the market risk premium, this component is the reward of the market offers for bearing an average amount of systematic risk in addition to waiting.
3. The amount of systematic risk. As measured by beta (β), this is the amount of systematic risk present in a particular asset or portfolio, relative to that in average asset.

Conclusion

Based on the analysis the movement of the market return from Barito Pacific compare to IHSG and LQ45. Among of them the rate of return of Barito Pacific Tbk is highest, that makes Barito Pacific Tbk promising and profitable in the stock market. From the lowest and highest daily stock market Barito Pacific has an unstable in their daily stock data. In general, the market return is very influential on the stock return. The stock return will influence the risk of company. If the return of daily market and stock change in large range, the risk will be lower. Reversely when the daily market of stock was change in few number risks will be higher.
In term of investor choices , we suggest Barito Pacific Tbk stock to the investor that applied defensive investment strategy as we know in defensive company has small values of the beta means this company stock price relatively unaffected by the swings in the overall market. The main advantage of a good defensive investment strategy is the minimum risk of capital loss so that when crisis happens, the investors doesn’t suffer a big loss. Moreover, other advantages include better planning of investments, almost steady and predictable income.