Indonesia's Stock Market: A Remarkable Turnaround

Strategic Insights -

Jakarta's small but booming stock market has witnessed a stunning transformation in just three years, going from one of the world's worst-performing exchanges to one of its best. Local investors, who had deserted the market after it collapsed in 1991, have since returned, even rioting to get hold of new issues. Foreign investors, who had previously been skeptical of the market's fundamentals, now play a significant role in backing a market underpinned by strong fundamentals and tighter regulations.

Key Takeaways:

  • The Jakarta Stock Exchange's composite index has doubled in 1993, closing at 552.90 points in the week before Christmas, with a peak of around 640 in April 1990 and a low of 225 in October 1991.
  • The market is expected to break the 600-point barrier during the first quarter of 1994, driven by interest rate reductions, an improved economy, and enhanced company earnings.
  • The market's liquidity problem is limiting the availability of stock on the secondary market, leading brokers to rely on a steady stream of rights issues to meet demand.
  • The regulatory body, Bapepam, has implemented a policy limiting new issues to a price-earnings ratio of 13 times 1993 earnings to protect investors.
  • Despite the liquidity issue, the market has seen a surge in demand, with investors rioting outside the office of PDFCI Securities and smashing glass panels at PT Wardley James Capel's brokerage office.
  • The success of Barito Pacific Timber's listing has given the Jakarta Stock Exchange head, Hasan Zein Mahmud, leverage in his battle with critics who say the market is too small to handle large issues.
  • The coming year looks set to be a bright one for the exchange, with overseas funds showing no signs of drying up and improvements to trading and regulation in the pipeline.
  • To address the liquidity issue, Bapepam plans to introduce a netting system next year, and a credit rating agency is expected to be in place around mid-1994 to assess the risk of bond issues and other instruments.

Statistics:

  • The Jakarta Stock Exchange's composite index peaked at 640 in April 1990 and bottomed at 225 in October 1991.
  • The composite index has doubled in 1993, closing at 552.90 points in the week before Christmas.
  • The market is expected to break the 600-point barrier during the first quarter of 1994.
  • Barito Pacific Timber's listing was oversubscribed 39 times.
  • Indonesia's largest stock, Barito Pacific Timber, accounts for about 13% of market capitalization.

Sources:

  • Reuters News Agency, "Jakarta Stock Market Sees Bright Future", 1993
  • Jakarta Stock Exchange, "Composite Index", 1993
  • Bapepam, "Policy on Price-Earnings Ratio", 1993
  • PT G. K. Goh Ometraco, "Comments on Bapepam's Policy", 1993
  • Barito Pacific Timber, "Listing Prospectus", 1993